The UK hotel industry stagnated in 2011, with sales flat at £6.2 billion. Its zero growth significantly underperformed the Western European hotel industry as a whole, which grew by 4% to reach £91.3 billion in the same year.
The UK’s VAT rate increase from 17.5% to 20% and the sluggish economic recovery hindered further increase of occupancy rates and hotel pricing remained flat. Regardless of the attention and increased number of visitors attracted by the royal wedding in April 2011, the hotels in London did not register a major increase in reservations due to the event.
The UK continued to experience polarisation within the hotel market in 2011 as well. Luxury and 5-star hotels kept their market share, suffering some minor losses, while budget hotels remained popular thanks to their lower rates. The 3-star hotels, however, were hit the hardest, losing the majority of their customers to budget hotels due to high unemployment levels and an uncertain economic climate.
London is a bright spot
London continued to have the highest occupancy rate in the country with more than 80% in 2011—significantly higher than the national average of 65%. The national average daily rates (ADR) in 2011 remained flat compared to 2010 with, again, the exception of London, which not only delivered the highest ADR in the country, with prices close to £120, but also measured the highest growth (7%) compared to 2010. London has benefited from a growth in foreign arrivals, up 3% in 2011, thanks to its strong tourist attractions and the weaker pound. The city also benefited from growth in domestic trips, which also grew by 3%. The shaky economy inspired Britons to vacation at home instead of going abroad.
Other Western European markets outperformed the UK in 2011
Italy, France, Spain and Germany are the largest countries for hotel sales, accounting for 65% of the Western European market (the UK ranks as fifth behind Germany). All experienced stronger growth than the UK market, although performances varied.
France had a stellar year in 2011, growing by 7% in 2011 to reach £14.8 billion. The return of business travellers, as well as strong growth in high spending travellers from emerging markets, helped boost hotels in France.
The strong popularity of city trips among German travellers and the increasing number of foreign visitors to cities such as Berlin, Frankfurt, Hamburg and Munich led to an increase of 4% in hotel sales to end 2011 with £9.5 billion in sales.
Despite the economic crisis in Spain, the hotel industry benefited from Europeans avoiding the instability of North Africa and opting for Spanish coasts and islands instead. These tourists were mostly of European origin, with the majority coming from the UK, Germany and France. Totalling £14.1 billion, the Spanish hotel industry grew by 3% in 2011.
As the largest Western European market, Italy is relatively mature. Hotel sales totalled £20.7 billion in 2011 and only grew by 2%. This growth was driven mostly by foreign visitors to Italy, as domestic tourists opted for other types of accommodation to conserve spending. Additionally, various cities in the country levied a new tax on overnight visitors. Rome was the first city that had the possibility to charge such a tax for visitors staying overnight in the city. The tax is applied in line with some criteria (for example, type of accommodation outlet and season) and cannot be more than €10 per night. The income of the tax can be used to finance any kind of expense; however, the city of Rome decided to allocate at least 5% of the total income from the tax to increase the promotion of the city to tourists.
Source: Euromonitor International
The outlook is not bright for the UK hotel industry
The UK hotel industry is expected to underperform over the next five years, growing by just 2% through 2016 to end with £6.4 billion. This is below the growth rate of 6% for Western Europe as a whole, which will reach £96.6 billion. Even though London hosted the Queen’s Jubilee in June and the London 2012 Olympic and Paralympic Games in July and August, these events are not expected to have a significant impact in the long term. Instead, economic uncertainty, increasesin Air Passenger Duty and the VAT increase will likely provide serious challenges to inbound tourism, domestic leisure travel and the hotel industry
The Turkish market is expected to boost the Western European region with £1.1 billion in additional value sales expected to be generated from 2011 to 2016. Europeans, facing great uncertainty regarding their disposable income due to the economic crisis, are more likely to visit Turkey because of its proximity, relative low costs and relative stability. As a result, the hotel industry is expected to experience strong growth in sales.
France is likely to be the second fastest growing hotel market over the next five years. Its hotel market is expected to grow by £720 million thanks to stronger demand by domestic leisure tourists. Spain is not far beyond with projected growth of £705 million. This will be driven by foreign tourists due to the expected poor performance of the Spanish economy, which will likely continue to dampen domestic demand. However, if the political situation stabilises in North Africa in the short term, it could mean that European tourists opt to go to North Africa instead, which would undermine growth in the Spanish hotel industry.
The German hotel industry is expected to grow by £470 million through 2016. However, if the German economy is hit hard by the Eurozone debt crisis, this could have a negative impact on hotels in the short- to mid-term. If consumers are afraid of being affected by a double-dip recession, they might cut down on holiday expenditure as well as on their number of trips, which would curb city tourism and international travel. The good news is that Germans are resilient travellers and prioritise their holidays, so the economy would have to perform considerably worse for them to cut back. If the Eurozone crisis turns out to last longer than expected, inbound flows could also be affected with any decline in this area also negatively impacting on the hotel industry.
Source: Euromonitor International