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Lean years ahead for UK hotel sector - though London offers a silver lining

Deloitte European Hotel Investment Conference 2012 survey

14 November 2012

  • 41% of senior hospitality figures expect UK  regions may  take up to five more years to return to top-line peak;
  • London RevPAR is well ahead of previous peak;
  • Traditional bank debt will make up just 38% of financing/refinancing in 2013;
  • Over half say it is still impossible to secure financing in regional UK.

Regional UK hotel top-line performance could take up to five years to recover, according to research by Deloitte, the business advisory firm, in conjunction with TNS.  

The survey of almost 100 senior hospitality figures, conducted ahead of the 24th Deloitte European Hotel Investment Conference, revealed 41% expect regional UK hotel top-line performance could take up to five more years to return to its previous peak. Almost one in five (19%) believe it will take longer, whilst a third (35%) anticipate it will take up to three years.

Expectations are that the South East (excluding London) hotel market will recover more quickly than the rest of the UK. Over half (54%) envisage a return to pre-2008 levels within three years. London continues to perform exceptionally with revenue per available room (RevPAR) well ahead of its previous peak.  

Nick van Marken, global head of hospitality at Deloitte, says: “Regional hotel performance is closely linked to the health of the domestic economy, with a close correlation between RevPAR and GDP. The real concern is that unless volume returns, hoteliers are unlikely to be able to drive pricing (average rate). The consequences of this are already all too evident, with a significant erosion of the bottom line and little sign that an improvement in profitability will be seen for some time.

“By contrast, London is an established international gateway. As a cultural, economic and political hub, the city enjoys a pre-eminent position both domestically and internationally, contributing to robust market performance and a thriving investment market.”  

London’s strong transaction pricing is expected to continue in 2013 and beyond. Almost two-thirds (61%) of the survey respondents say it comes as a result of the city’s position as a true global gateway and the high barriers to entry. A third say the top-end of the market will dominate where investment from overseas sovereign wealth funds and high net worth individuals in particular is expected to continue to be strong.

Traditional bank debt is expected to make up just 38% of UK financing/refinancing in 2013, according to the survey. Private equity (33%) and insurance companies (15%) are identified as other major alternative funding sources.

Whilst only 8% of respondents to the survey believe financing is hard to obtain in London, it remains the major issue outside the capital. Over half (52%) say it is still impossible to secure financing for any projects in regional UK.  Where financing is available, it has been easiest to obtain for budget and midscale acquisitions and developments.

As a result, some 70% believe it will take three to five years before the regional UK transaction market returns to more normal conditions, though almost a quarter (24%) expect it will take significantly longer.

van Marken comments: “Barring any global demand shocks, London should continue to be a highly attractive investment market with high barriers to entry. We may see more regional portfolio deals coming to market and certainly several possible transactions are being mooted. This said, difficulties in accessing debt funding and the continued disparity between buyer and seller in terms of price expectation mean disposal processes are likely to continue to be longer and more difficult to complete. The market will continue to favour cash buyers or those not totally reliant on bank financing to close a deal.”

Ends

Notes to Editors:
About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

About TNS
TNS advises clients on specific growth strategies around new market entry, innovation, brand switching and stakeholder management, based on long-established expertise and market-leading solutions. With a presence in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands individual human behaviours and attitudes across every cultural, economic and political region of the world.

TNS has a wealth of experience in managing brand and customer satisfaction studies in the UK and worldwide. By bringing together measurements of brand commitment and customer experience, we provide our clients with a more holistic understanding of performance against brand promise.

TNS’s clients in the travel, tourism and leisure sector include all the national tourism organisations in the UK and Ireland, the UN World Tourism Organisation and the European Travel Commission. We also carry out research for leading hotel groups, travel operators, airlines, visitor attraction operators and train companies.

TNS is part of Kantar, one of the world's largest insight, information and consultancy groups. Please visit www.tnsglobal.com for more information.

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