British hotels have proved resilient to the political and economic storms of 2016, with the sector recording its seventh consecutive year of growth.


BDO’s Hotel Britain 2017 report has revealed that daily rooms yield in the UK rose by 0.7% to £75.64 in 2016. The marginal growth experienced by hotels came despite a slightly weaker performance in occupancy (down by 0.8% to 77.8%) and as a result of an increase in AARR, up by 1.5% to £97.28.

London hotels have demonstrated once again their resilience especially considering the increase in supply. AARR showed healthy growth (+1.1% to £151.45) for most London hotels. The top performing segment was townhouse and boutique hotels with rooms yield up by 7.9% to £255.03.

However, there are currently over 16,000 new rooms expected to be opened during 2017 and 2018, which will keep putting pressure on London hotels, which saw occupancy fall by 1.4% last year.

Regional hotels continued to experience steady growth, with occupancy up by 1.0% to 76.7%, setting a new record. Consistent AARR growth remained the main driver for regional hotels’ performance. Average room rate was up by 1.7% to £64.24. As a result, regional UK hotels’ rooms yield grew by a healthy 2.7% to £49.24.


The outlook

While the outlook for 2017 remains uncertain, hoteliers can do much to plan ahead. The impending Brexit negotiations will shape the sector going forward.

Hoteliers will need to look for both short and long-term solutions to the potential tightening of the free movement of workers around the EU, profit margins already being squeezed by the rise in food costs and the continued growth of the sharing economy, among many other challenges.

One of the biggest opportunities for those in the industry is to capture spend from overseas. Inbound visitors were at an all-time high of 37.3 million last year and with the low value of sterling we can only presume that this will continue to rise.


Our predictions

Below we outline what we expect to see in the sector into 2017:

  1. Rise in overseas visitors and staycation spending – Foreign spending hit an all-time high in the UK in 2016 and amounted to £22.1bn into the UK’s economy. It is expected that numbers of visitors will reach 38m in 2017 – the highest number ever. As those residing in the UK experience weaker exchange rates, an increase in the number of ‘staycationers’ can also be expected.
  2. Change of menu for F&B – An increase in menu engineering which focuses on the profitability and popularity of menu items and, when undertaken successfully, could increase margin by 10-15% is expected. This comes at a time where a number of hotel operators have been investigating opportunities to pair up with well-known restaurant chains to replace their own brand restaurants in house.
  3. Labour crisis necessitates change – It was recently estimated by the BHA that it will take up to 10 years for the hospitality industry to replace their EU staff with home grown workers in the wake of Brexit. In the short term, the focus will be on where efficiencies can be made in labour scheduling and outsourcing. In the medium term, we will see the rise of the recruitment agency to assist operators in finding staff and guiding operators and potential employees through visa/work permit requirements. In the long term, this will increase the use of technology and reduce the reliance on physical labour where possible.
  4. Crack down on the sharing economy – The industry has been calling for a crackdown on the less regulated sharing economy for some time to ensure a level playing field. The ‘google of guest rooms’ has already met opposition from some of our European neighbours as well as the US and it is possible that the UK Government will introduce increased regulation this year.
  5. Tensions at fever pitch between owners and operators – In line with the rise in popularity of online travel agencies (OTAs), and continual cost pressures on hotel owners, we are predicting the beginning of a shift away from traditional hotel management agreements (HMAs) rewarding operators on total revenue to a greater weight to incentive payments and the exclusion of OTA generated revenue from calculation of fees payable based on revenues. While the brands will continue to dominate new openings and technological development, owners will be looking at smarter ways to maximise and protect their own returns.


Robert Barnard is Management Consulting Partner at BDO.

“The negotiations between the United Kingdom and the EU will have a significant impact on (among other things) currency, business activity and border control, all of which play a vital role in the hotel industry.”

Robert Barnard, Partner, BDO

The hotel industry continues to grow amid political and economic challenges

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