UK: Research by Lambert Smith Hampton reveals how Covid-fulled staycations have led to wide variations in the performance of hotel markets across the UK.
The summer period and its staycation boom improved the trading conditions for destinations that draw most of their demand from domestic tourism. STR data reveals that locations such as Brighton, Bournemouth and Plymouth recorded occupancy rates about 80 per cent in August.
In contrast, London, Manchester and Birmingham recorded occupancy rates close to 30 per cent during the same month.
A survey conducted for the Cumberland Building Society found that 83 per cent of respondents preferred to take holidays in the UK rather than travel abroad for the year, with nearly three-quarters planning to book a UK holiday for 2021.
Revenue
Despite the majority of hotels having reopened, many are taking a phased approach to the reopening of hotel amenities.
Revenues have been significantly impacted, even in those markets that benefitted from a surge in staycations. The 10pm curfew on hospitality businesses applies to hotel bars and dining areas, and the possibility of further trading restrictions or even a second lockdown could impact the sector substantially during the winter months.
Support
The UK government has extended its temporary VAT cut for hospitality and tourism businesses, with the five per cent rate to remain in place until March 2021. A new Jobs Support Scheme has also been announced to replace the current furlough scheme, however it is considerably less generous and unlikely to prevent job losses in the sector.
Industry bodies such as UKHospitality have called on the government to provide further financial support, without which could cost the livelihood of nearly a quarter of hospitality businesses.
Investment
Approximately £1.7 billion of hotels were transacted in the first three-quarters of 2020 – about 36 per cent down on the same period of 2019.
There has been an absence of large-scale deals since lockdown, though a growing number of smaller-scale transactions have been seen in the UK regional markets, including some distressed asset sales. Increased investment activity is likely to be spurred by further distressed assets coming to the market over the next few months.
The staycation boom has piqued investor and developer interest in seaside locations, and opportunities will emerge for cash-rich investors in particular to acquire assets offering significant upside potential once trading conditions normalise.
Outlook
Operators with well-located hotels that were profitable and well invested with low gearing pre-Covid will be best placed to emerge form the pandemic. Hoteliers that were already highly geared and whose assets were suffering from lack of investment face a more difficult future.
Some hotel owners will need to consider strategies such as whether to make a fresh investment in an asset, business and its people, or whether an alternative use for the property might provide a better long term outcome.
The latest Boutique Hotel Trailblazer webinar discussed the opportunities for repurposing hotels. You can watch a recording of the session here.
