MANCHESTER, England—There are reasons to be optimistic about the United Kingdom, but hoteliers need to look at the bigger picture, experts said during the Annual Hotel Conference at the Hilton Deansgate Wednesday.
“The hotel industry is a blood sport, one far more brutal than any professional sport,” said Kevin Roberts, CEO Worldwide of advertising agency Saatchi & Saatchi, and the keynote speaker at the conference.
Jonathan Langston, senior director for CBRE Hotels in Europe, Middle East and Africa, had the task of following Roberts, who lives in New Zealand and travels 250 days or more a year, and providing a synopsis of where the United Kingdom hotel industry resides.
“There are certainly reasons to be cheerful about the current hotel market, which is driving rate growth,” Langston said, “but in terms of relegating property destination decisions to London and one or two other cities, generalize at your peril. People recently have thrown the book in on Birmingham, Liverpool and, in some ways, Leeds, but you cannot fall fully into such thinking. Hoteliers need to see what the opportunities are in each market, certainly as the upcoming year should see more transaction activity, and with it, yields moving, too.”
Hotel market performance
Langston added “measuring hotel success by the growth of revenue per available room is not enough.”
He urged the audience of approximately 300 people to concentrate on total revenue per available room as a metric to drive gross operating profit per room.
“I will continue to bang on that it is TrevPAR that we should be concerned about, not RevPAR. U.K. cities such as Brighton do very well in regards to TrevPAR, with, obviously, average room rates alone not powering overall profit,” he said.
In terms of U.K. city growth, London was in pole position.
“Nottingham remains at the bottom,” Langston said.
According to CBRE Hotels, year-to-end August figures showed RevPAR of approximately £115 ($185) in London, while Nottingham came in at less than £40 ($63). Bath stood out, too, “for its relatively low RevPAR but very high occupancy,” Langston said. Other U.K. cities doing well at the moment, according to Langston, are Aberdeen, Cambridge and Oxford.
“We are seeing some U.K. cities do well in terms of RevPAR, but that does not translate into profits. Still critical are Birmingham, Stratford-upon-Avon, Cardiff, Liverpool, Leeds, Newcastle and Nottingham,” Langston added.
Key topics
Langston concluded with the five key points important in regard to the U.K. hotel market:
- Average rate. The true picture, Langston said, is that it has taken 16 years for average daily rates to recover in the provinces from their 1990s high, as per CBRE Hotels’ calculations, but the recent trough in the provinces was not as bad as it was in its mid-1990s low.
- Third-party intermediaries. Some consider online travel agencies a necessary evil, but the real danger is OTAs are able to play hoteliers like voodoo dolls, sticking in pins whenever they feel like it, and hoteliers have become handcuffed to OTAs. In the U.K., travel-agency commissions are very high in such places as Bath, Brighton, Liverpool, Manchester and Oxford. Top of that list, Aberdeen has seen an 89% rise in commissions.
- Brand landscape. Brands are king, especially the luxury brands, which have risen in number. But also increasing is the affordable luxury segment, such as brands CitizenM, Moxy, Aloft and Yotel. “In full-service hotels, franchised properties account for 23% of the market, with owner-operator properties coming in at 39%,” said Langston. “In the limited-service sector, franchised properties account for 13% of the market, while owner-operator properties came in at 19%.”
- Transactions. The industry already in 2013 has seen a noticeable increase in transactions, from a low in 2009—and even from 2012. In addition, yields are moving up, and while this mostly affects London, where prime property is scarce and of a trophy nature, prime provincial and secondary provincial markets are also impacted.