Opinions.

Hotel market checks into a brighter future. Opinion: Simon Horner

Covid pandemic lockdowns and restrictions that started from March 2020, had a crippling effect on the hospitality sector, with pubs and restaurants shut, and hotels emptied, as a ban on travel saw occupancy rates plummet.

Then, when restrictions were completely lifted in February 2022, with domestic and international travel restarting in earnest, UK tourism quickly bounced back. 

Four years on from the start of the pandemic occupancy levels are healthy and hotel charges are now climbing to match pre- Covid stats: 2023 occupancy rates are up to 80% in London, and 75% in the regions - 2018 figures put it at 82%, and 76%.

This translates into much-needed revenue and profits for existing operators, with Travelodge a prime example. The 600-strong chain, with 46,000 bedrooms, went through a CVA in June 2020, but last year reported a record turnover of just over £1 billion and just under £250 million profit.

The pandemic has left a few lingering issues, however. For example, GCW’s client Vastint, who we acted on behalf of in buying sites for their Moxy brand, including Heathrow, Birmingham NEC and Bristol, had to step in and rescue their European operating partner SHS, temporarily putting their growth plans on hold.

However, generally existing and new UK operators are planning to grow their operations. GCW are now helping MEININGER Hotels expand in the UK, following the brand securing their Edinburgh site, to add to their existing European portfolio of 35 plus hotels with 20,000 beds. The challenge for expansion of the hotel sector does remain the deliverability of new sites. 

Positivity with the occupancy rates certainly help, but costs for building have shot up substantially thanks to increasing materials, labour and cost inflation over the last 18 months. Combined with the increasing cost of money and yield rates moving out, this means viability for new development is challenging.

In addition, Central London has its own problems with a potential oversupply of top-end hotel bed space where normal rules around occupancy rates and viability don’t necessarily apply.

On a positive note, community stakeholders are seeing the provision of beds in given areas as essential building blocks for healthy town and city centres throughout the UK. They are looking at creative ways to make this deliverable as part of new mixed-use developments and using financial instruments such as Income Stripping to help viability.

Brand operators like Marriot are pondering how they can creatively help franchisees and operating partners to bridge funding gaps to bring developments forward.

What we, at GCW, believe is with this desire and stability of building costs and improvement in finance, it will help secure a pipeline for new developments and a noticeable increase in new openings for 2026/27.

MEININGER provides variety with a mix of room sizes and bed numbers to give consumers more choice and better value. A&O Hostels have announced plans to open more sites across the UK and Europe. In larger cities, aparthotel operators such as Staycity part of the Lamington Group, are appealing to consumers looking at longer stay accommodation. 

Combined with working actively with several operators on their requirements, we are also looking to help some of our owner and investor clients who want to include more “beds” in their developments and investment portfolios.

While the hotel market has improved since 2020, it is still not the easiest of market conditions, but we see the financials improving the current dynamics and there is undoubtedly a strong desire from everyone in the hotel sector to see it flourish and expand.