THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK

Transcription

1 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN 2016

2 HOTEL BRITAIN 2016 CONTENTS Economy and Tourism 2 Survey Results 8 Winners and Losers 14 Summary of five year performance 17 UK hotel transactions 22 UK hotel developments 24 TOP 5 predictions for Disruptive forces 28 Competition 29 Clairvoyant corner 32 BDO Leisure and Hospitality Services 34 Survey coverage 37

3 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN FOREWORD As we write, the world s economy faces turmoil of uncertain proportions. China, the second biggest economy in the world has slowed sharply and the oil price remains volatile and low, albeit showing modest signs of heading upwards. The European Union continues to face sovereign debt issues, the migrant crisis and the risks of a Brexit. In 2015 the UK s economic growth slowed down. Britain s gross domestic product rose 2.2% compared with the 2.9% growth seen in However, it was the second fastest growing major economy after the US, which showed a stronger performance with GDP up by 2.4%. UK hotels saw rooms yield increasing by 5.7%, with regional hotels (+5.1%) outperforming their London counterparts (+1.1%). Figures were not quite as impressive as the ones seen in 2014 but there is still some room for optimism as UK hotel transactions volume surpassed pre-downturn levels for the first time and hit a nine-year high at 8bn in Both daily rate and occupancy continued to show strong growth for regional hotels. London occupancy was marginally down by 0.4% though still at a high level, and rates have continued to grow throughout. The Capital remains one of the top global cities for hotel development. Having driven strong growth in 2015, the budget segment has reaffirmed its status as one of the most important components of the industry. Recently new brands and concepts have entered the UK hotel market, and this is expected to continue as customers remain highly price-conscious and seek good value for money deals is poised to be another year of growth for the UK economy, with GDP growth expected to be around 2.0% per budget. However, there are some factors that might compromise the pace of growth for the economy and especially for the hotel industry. The referendum on the UK permanency in the EU in June and the fears of a Brexit are clearly the most obvious factors that could pose uncertainties in the short term. Brexit panic pushed the pound to a seven-year low the day after the referendum was announced and Mayor Johnson publicly backed the campaign to quit the EU. Uncertainty surrounding the outcome of the US presidential election is likely to weigh on transatlantic visitors during this year. Notwithstanding the risks, the outlook still remains positive with tourist arrivals set to achieve another record high despite not having any major sporting events to boost business from overseas. ROBERT BARNARD Partner Hotel, Leisure, Hospitality and Tourism Consultancy Services robert.barnard@bdo.co.uk

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5 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN ECONOMY AND TOURISM In 2015, the UK economy slowed down after experiencing record growth rates in The IMF estimates GDP growth to be 2.2%. Domestic demand, however, remained strong helped by higher household disposable income, thanks to lower oil prices, strong employment growth and lower inflation and mortgage rates. The outlook for the UK economy remains positive, and is expected to continue growing at a similar rate over the coming years according to the IMF. Nevertheless, the slowdown in China and recessions in other emerging economies, as well as the uncertainties in Europe and the risk of a Brexit may impact on any potential performance. CPI inflation remained close to zero during the last quarter of 2015, closing the year at 0.2%, thanks to low energy, food and goods prices. Forecasters believe it could rise back towards its 2% target during The current account deficit stood at -4.7% of GDP, showing a modest improvement against last year and making Britain less dependent on foreign capital. The UK government s gross debt reached almost 1.6 trillion at the end of 2015 being 88.9% of total GDP. According to the Office for National Statistics (ONS), public sector net borrowing excluding public sector banks decreased by 10.6 billion to 66.5 billion in the current financial year-to-date (April 2015 to January 2016). The IMF currently forecasts gross debt to decrease as a proportion of GDP during 2016/17 although this may be affected by recent downgrading of various economic forecasts. TABLE 1: UK economic indicators f SOURCE: International Monetary Fund, October 2015 fforecast f 2016f Real GDP Growth (%) CPI inflation (%) Current account deficit (% GDP) Government gross debt (% GDP) Unemployment (%) UK INBOUND HITS NEW RECORD International visitor numbers continued growing for the sixth consecutive year in 2015 reaching record-breaking figures. Provisional ONS data shows that the number of visits to the UK by overseas residents reached 35.8 million, 4% higher than a year earlier. Trips for visiting friends or family (VFF) experienced the highest increase (up by 6.2% to 29.1% of the total) and holidaymaker numbers were down by 0.5%. However, this segment continued to account for almost 40% of total visitor numbers. VisitBritain estimates that overseas visitors will reach 36.7m in 2016 and 22.9 billion expenditure. The labour market continues to show a strong performance with the ONS reporting million people in work at the end of Between October and December 2015, the rate of unemployment fell to 5.1%.

6 3 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK TABLE 2: Overseas visitors to the UK, by purpose of visit (thousands) % change 2015 market share Holiday 12,008 11,961 12,781 13,760 13, % 38.2% Business 7,238 7,422 7,931 8,370 8, % 24.4% Visit friends or family (VFF) 8,841 8,948 9,369 9,840 10, % 29.1% Miscellaneous 2,710 2,752 2,812 2,830 2, % 8.1% All visits 30,798 31,084 32,893 34,800 35,800 Year-on-year growth 3.3% 0.9% 5.8% 5.8% 8.7% SOURCE: VisitBritain Monthly Update: December figures are provisional. Visits from EU15 markets during 2015 were million, 2% higher than 2014 and the best rolling twelve month period ever recorded. Visits from other EU markets showed a strong year, with growth up 15%, marking another record with 4.12 million visitors. Europe continues to be the main inbound market for the UK, accounting for about three-quarters of the total. North America visits for 2015 were up 8% to 3.9 million. The segment has recovered its pace of growth mainly due to the strength of the dollar. Figure 1 presents the seasonality of inbound visits to the UK. Total visits peaked during the month of October 2015, surpassing the 3m mark, up 12% on the same month the previous year helped by the Rugby World Cup. Figure 2 presents the year on year percentage change for selected inbound markets to the UK during We note that visits from Central and Eastern Europe grew substantially last year, with visits from Southern Europe also remaining very positive. Romania (47%) and China (24%) showed the highest growth. Visits from North America also posted good results with Mexico (18%) and Canada (10%) showing double digit growth. FIGURE 1: Overseas visitors to UK, by source market Visitors (in thousands) 3,000-2,500-2,000-1,500-1,000 = Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sept-15 Oct-15 SOURCE: International Passenger Survey, ONS Nov-15 Dec-15 All visits Europe Other countries North America

7 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN Figure 3 shows the comparison for inbound and domestic visits and spending to the UK to October Domestic visitor numbers for the full year were not available at the time of writing. Good economic performance and events such as the Rugby World Cup drove an increase in domestic visitor expenditure for the year to date to October 2015 by 8.7% to 21.3bn, mirroring the increase in visitor numbers (up 8.3% to 104.7m). After a cold 2014, with domestic visitor numbers and spending down, 2015 showed record breaking figures in both domestic and inbound visitors and increased spending as a result. However, expenditure was lower than in previous years and inbound visitor spend was only up 0.3% to 21.8bn, affected by the weakness of the euro. It is still to be seen how the events in Paris in November last year will affect what has been a seasonally strong month for corporate activity and how that affects December which usually records thousands of visits each year. Provisional figures released by the ONS showed overseas visitor spend in December 2015 up 1% to a record figure of 1.74bn, which should provide some comfort. TABLE 3: Domestic tourism by purpose of visit (YTD October) % change Holiday % Business % Visit friends or family (VFF) % Miscellaneous % All visits % Year-on-year growth 3.8% -0.1% -5.1% 6.6% SOURCE: ONS, Overseas Travel and Tourism; Great Britain Tourism Survey October 2015, Great Britain Tourism Survey 2015 (Domestic figures as per October 2015) FIGURE 2: Percentage change in visits from selected countries 50 47% FIGURE 3: All UK visitor expenditure Romania 24% China 18% 16% 15% Mexico Poland India 10% Canada Japan Turkey Saudi Arabia Thailand -10% -11% -13% -14% Russia Visitors (in millions) Spend ( billions) % SOURCE: VisitBritain, Monthy Inbound Update: December (2015 figures are provisional. Domestic visitors (millions) Inbound visitors (millions) Domestic visitors (millions) Inbound visitors (millions) SOURCE: ONS, Overseas Travel and Tourism; Great Britain Tourism Survey October 2015, Great Britain Tourism Survey 2015 (domestic figures as per October 2015)

8 5 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK PASSENGER NUMBERS According to the UK Civil Aviation Authority (CAA), UK airports experienced a record breaking year in terms of passenger growth. Total UK passengers were up 6.9% to 254.7m in London airports saw passenger numbers increase by 6.0% to 154.3m and with the exception of Heathrow and Gatwick, all posted double digit growth. London City saw passenger numbers rise by 18.4%, followed by Luton with an increase of 17.0% to 12.3m. Despite the difficulties faced by both Heathrow (+2.2% to 75.0m) and Gatwick (+5.7% to 40.3m) airports handling larger volumes of passengers due to the congestion of their runways, the increased use of superjumbos in both London airports, has helped to increase capacity and pushed passenger numbers up. Excluding London airports, Wales was the best performing regional airport with passenger traffic up 13.9% to 1.2m, thanks largely to the Rugby World Cup matches held in Cardiff, boosting the performance of what is essentially a small airport which has seen passenger numbers decrease in previous years. Birmingham airport, which surpassed the 10m passenger mark in 2015, has undergone several infrastructure upgrades. These include the extension of its runway to enable it to start operating regular superjumbo flights from March 2016, which is expected to have a favourable effect on passenger numbers. Land s End St. Just airport in Cornwall was the top performer in 2015 with an increase of 21.3% in passenger volume a great improvement on 2014, which saw the airport closed during part of the year to repair its grass runway. Doncaster Sheffield airport also experienced strong growth in 2015, with an 18.3% increase to 0.86m. The introduction of flights to Dublin, with the possibility of onward connections to the US by Aer Lingus Regional in Summer 2015, and several new routes operated by Wizz Air to Poland and other destinations in Central and Eastern Europe, proved to be highly beneficial for Robin Hood Airport. Despite the efforts of Cambridge Airport to continue the strong growth it experienced in 2014, we saw the worst results in 2015 reported with passenger numbers down 71.9% mainly attributable to the cancellation of routes. THE OUTLOOK FOR TOURISM VisitBritain 2016 forecasts expect the number of visits to the UK to rise by 3.8%, reaching approximately 36.7m, and visitor spending to reach 22.9bn representing an increase of 4.2% on 2015 results. However, there are several risks that may affect these figures during the year ahead such as the uncertainties in the global economy, deflation in the Eurozone, exchange rate volatility with the pound stronger against many major currencies and the lack of UK-hosted major international sporting events compared to recent years.

9 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN TABLE 4: UK passengers (in millions) AIRPORT * % change CAGR (%) Heathrow % 1.6% Gatwick % 3.7% London City % 7.6% Luton % 5.2% Stansted % 4.5% Total London % 2.9% Edinburgh % 3.4% Glasgow % 4.9% Birmingham % 3.2% Manchester % 4.1% Other UK % 2.4% England % 2.6% Scotland % 2.9% Wales % -0.8% Northern Ireland % 1.3% Total UK (inc London) % 3.0% SOURCE: UK Civil Aviation Authority. *2015 figures are estimates

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11 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN SURVEY RESULTS Our analysis covers a consistent sample of 508 hotels across the UK (totalling 54,537 rooms), with supporting monthly data since British hotels continued to grow for the sixth consecutive year in In 2015, daily rooms yield for the UK rose by 5.7% to 75.08, breaking the 2014 barrier and setting another year of record growth, with the highest average room rate over the last four years. The strong growth experienced by hotels in the UK was the result of a robust growth of 4.6% in AARR to 95.80, as well as a modest 1.0% increase in occupancy. FIGURE 4: Summary of performance, UK hotels ( ) TABLE 5: Summary of performance, UK hotels ( ) % AARR ( ) Rooms yield ( ) Occupancy UK hotels CAGR% ( ) Occupancy Year-on-Year growth (%) % 2.8% 1.4% 1.0% 1.0 AARR Year-on-Year growth (%) - 3.2% 0.5% 3.1% 4.6% 2.6 Rooms yield Year-on-year growth (%) - 2.1% 2.3% 4.5% 5.7% 3.7 SOURCE: BDO research SOURCE: BDO research

12 9 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK LONDON London hotels performance remained relatively flat during Occupancy was up 0.2% to 82.8%, returning to 2013 levels. AARR continued to grow at a similar rate to 2014 with an increase of 0.9% to , resulting in a rooms yield of , up 1.1%. Despite the modest figures, London hotels have fully recovered their pre-recession performance and again demonstrated their resilience. The continued increase in supply in the Capital makes it difficult for hotels to produce the more marked growth provincial hotels have experienced recently. FIGURE 5: Summary of performance, London hotels ( ) TABLE 6: Summary of performance, London hotels ( ) % AARR ( ) Rooms yield ( ) Occupancy (%) London hotels CAGR% ( ) Occupancy Year-on-Year growth (%) % 1.8% -0.2% 0.2% AARR Year-on-Year growth (%) - 5.2% -0.9% 0.9% 0.9% Rooms yield Year-on-year growth (%) - 3.4% 0.9% 0.7% 1.1% 3.7 SOURCE: BDO research SOURCE: BDO research

13 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN REGIONAL UK Regional hotels continued to experience strong growth in 2015 although at a slower pace compared to 2014 s stellar results with occupancy up by 1.1% to 75.9% setting a new record in occupancy levels. However, AARR was the main driver for regional hotels. Average room rate was up 4.0% to As a result of the increases in occupancy and AARR, regional UK hotels rooms yield grew by 5.1% to in Regional hotels have experienced the fifth consecutive year of rooms yield increase and high rates of growth overall since FIGURE 6: Summary of performance, regional hotels ( ) TABLE 7: Summary of performance, regional hotels ( ) % AARR ( ) Rooms yield ( ) Occupancy (%) Regional hotels CAGR% ( ) Occupancy Year-on-Year growth (%) % 3.4% 2.3% 1.1% AARR Year-on-Year growth (%) - 0.9% 1.0% 7.7% 4.0% Rooms yield Year-on-year growth (%) - 0.2% 4.5% 10.2% 5.1% 4.9 SOURCE: BDO research SOURCE: BDO research

14 11 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK CAGR ANALYSIS Figure 7 analyses the compound annual growth rate (CAGR) for occupancy, AARR and rooms yield for London and regional UK hotels. With inbound visits to the UK setting new records in 2015, regional hotels continued to experience a strong CAGR growth in occupancy and were responsible for the good overall UK results. Regional occupancy CAGR was up 1.5% while London hotels, by contrast, continued to experience flat occupancy due to the increase in supply and innate seasonality constraints. AARR continued to be the main driver for both London and regional hotels. London hotels experienced a weaker growth of 1.5% while regional hotels posted an AARR CAGR growth of 3.4%. PERFORMANCE BY HOTEL CATEGORY SEGMENT 2015 was another year of strong growth for the budget end of the market in both London and regional UK. Tourist hotels slowed their pace of growth from 2014, but continued to lead the market. Tourist hotels in London saw rooms yield up by 7.5% and under 50 regional hotels saw an increase of 14%. Hoteliers were again able to raise the average room rate for budget hotels as demand for the segment continued its strength. Demand also picked up at the upper end of the market in London with Townhouse and Boutique hotels experiencing consistent rooms yield growth. By contrast, the pace of growth for the upper end of the regional market slowed and the over 80 regional hotels category saw rooms yield decreasing marginally by 0.9%. Country house hotels rooms yield remained positive up by 2.6%. FIGURE 7: CAGR Analysis for UK hotels FIGURE 8: Rooms yield growth, London hotels 5 4 Townhouse/boutique CAGR % change 3 2 Tourist Business class 1 First class 0 Occupancy AARR Rooms yield International deluxe London Regional UK hotels Superior deluxe SOURCE: BDO research Deluxe -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% SOURCE: BDO research

15 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN TABLE 8: Rooms yield growth, London hotels Segment (AARR) Deluxe (> 150) 4.5% 0.1% -1.8% 0.8% Superior deluxe (> 200) 5.9% 0.1% -3.3% -1.5% International deluxe ( ) 1.7% 0.4% 1.4% -0.8% First class ( ) 3.2% 1.9% 2.8% -2.3% Business class ( ) 1.1% 3.5% 4.1% 6.6% Tourist (< 75) -4.7% 1.7% 9.9% 7.5% Townhouse/boutique (> 100) 3.0% 2.0% -0.5% 4.1% SOURCE: BDO research FIGURE 9: Rooms yield growth, regional hotels TABLE 9: Rooms yield growth, regional hotels < > 80 Rooms yield growth regional hotels Segment (AARR) Country House -0.8% 2.4% 3.5% 2.6% > % 6.0% 5.5% -0.9% % 4.0% 8.4% 7.0% % 3.8% 9.2% 5.9% % 2.8% 10.7% 8.5% < % 5.0% 17.9% 14.0% SOURCE: BDO research -5% 0% 5% 10% 15% 20% Country House SOURCE: BDO research

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17 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN WINNERS AND LOSERS Hotels in the UK continued to post good results and experienced another year of strong growth in Overall, rooms yield grew by 5.7% driven by the 4.6% increase in AARR, pushing CAGR to post an increase of 3.7%. After experiencing astonishing growth rates in 2014 the pace of growth in the regions slowed, but they continued to post positive figures. By contrast, London hotels improved their performance posting 1.1% growth in rooms yield. When compared to the previous year English hotels saw the strongest rooms yield growth of all UK regions, up by 7.0% to However, Northern Ireland continued to post the strongest hotels CAGR amongst all regions analysed over the last three years (+8.7%). English hotels growth was mainly driven by the increase experienced in AARR with daily rates up 5.6% to Northern Ireland hotels, despite slowing growth, continued to post good results with rooms yield up to (5.2%). Welsh hotels benefited from the influx of visitors during the Rugby World Cup and saw rate and occupancy soar thanks to the rugby matches held in Cardiff. Despite posting positive results, figures remained weaker than those experienced in 2014 and rooms yield was up a modest 1.6%. FIGURE 10: Rooms yield growth, regional hotels Regional UK England Scotland Wales -4.0% 1.6% 3.8% 4.1% 4.9% 5.1% 5.1% 7.0% In 2015, Scotland s hotel performance was severely affected by the low oil prices. Occupancy fell by 0.5% and rate dipped 3.6% causing rooms yield to fall by 4.0% to 54.28, compared to the double digit growth enjoyed in was an exceptional year for regional UK destinations, with only four out of 41 locations experiencing negative rooms yield growth, and 16 destinations posting double digit growth. Surprisingly, and after having experienced astonishing results due to the hosting of Rugby World Cup matches, Cardiff posted modest albeit consistent results for the year. By contrast, Nottingham topped the list for rooms yield growth, up 24.4% recovering from a disappointing Bath hotels also experienced strong rooms yield growth, up 20.1% due to a significant increase in AARR. Room rates were up 12.7% and occupancy was also up by 6.5%. Secondary UK urban centres are redefining their offers to attract as many visitors as possible. From smartphone applications and online games to smart cities, British towns and cities have recently implemented technology initiatives to compete with London. Milton Keynes, which saw rooms yield increase by 18.4%, has applied many of these new smart city initiatives. These include driverless cars on a trial basis, together with projects to create efficient urban services, as outlined by Milton Keynes Council Head of Strategy Geoff Snelson in the recent WTM Global Trends Report Contrary to most regional UK cities during 2015, the Aberdeen hotel market suffered from the downturn in the oil and gas sector together with the impact of new supply. The city s economy relies heavily on the energy sector and the current downturn in oil price is significantly affecting hotel performance in this region. We expect the economy in Aberdeen and the surrounding area to continue to be deflated for some considerable time to come, as a result. Ending on a positive, Gatwick Airport reported one of the busiest ever years in 2014, with over 40m passengers, up 5.7% from the previous year. However, hotels experienced a 4.2% decline in rooms yield over the same period. Occupancy held stable, but the increase in supply led to a -4.9% decrease in average room rate. Northern Ireland 5.2% 8.7% -6% -4% -2% 0% 2% 4% 6% 8% 10% CAGR /15 SOURCE: BDO research

18 15 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK FIGURE 11: Rooms yield growth, regional UK cities Nottingham Bath Leicester Milton Keynes Solihull Coventry Manchester Oxford Cambridge Chester Swindon Bristol Norwich Sheffield Southampton Bradford Reading Stratford-upon-Avon Birmingham Northampton York Maidstone Bournemouth Portsmouth Heathrow Newcastle Belfast Liverpool Leeds Inverness Glouchester Ashford Windsor/Maidenhead Cardiff Glasgow Edinburgh Cheltenham Brighton Derby Gatwick Aberdeen -20.1% -3% 2% 7% 12% 17% 22% SOURCE: BDO research CAGR /15

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20 17 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK SUMMARY OF FIVE YEAR PERFORMANCE 2015 Occupancy (%) % ch. CAGR No. of hotels No. of rooms /15 CAGR All UK , % 1.0% All London hotels , % 0.0% Deluxe (> 150) 44 9, % 0.0% Superior deluxe (> 200) 29 5, % -0.4% International deluxe ( ) 20 4, % -0.1% First class ( ) 33 9, % -0.8% Business class ( ) 15 3, % -0.2% Tourist (< 75) 30 4, % -0.5% Townhouse/boutique (> 100) % 0.0% Regional UK , % 1.5% England , % 1.7% Scotland 54 6, % 0.4% Wales 24 1, % 1.6% N Ireland % 2.3% > , % 0.7% , % 1.6% , % 1.5% , % 1.8% < , % 1.8% Country house 25 2, % 0.9% Airport hotels 19 3, % 0.8%

21 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN AARR ( ) % ch CAGR Rooms yield ( ) % ch CAGR /15 CAGR /15 CAGR % 2.6% % 3.7% % 1.5% % 1.5% % 0.9% % 0.9% % 0.7% % 0.2% % 0.8% % 0.7% % 2.2% % 1.4% % 4.0% % 3.8% % 4.0% % 3.4% % 2.1% % 2.1% % 3.4% % 4.9% % 3.4% % 5.1% % 3.4% % 3.8% % 2.5% % 4.1% % 6.2% % 8.7% % 2.5% % 3.1% % 3.2% % 4.8% % 3.5% % 5.1% % 4.2% % 6.0% % 6.0% % 7.8% % 1.0% % 1.9% % 2.1% % 3.0%

22 19 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK 2015 Occupancy (%) % ch. CAGR No. of hotels No. of rooms /15 CAGR Aberdeen % -2.3% Ashford % 0.9% Bath % 2.6% Belfast % 2.3% Birmingham 10 1, % 1.8% Bournemouth % 1.4% Bradford % 2.8% Brighton % 0.8% Bristol % 2.4% Cambridge % 1.6% Cardiff % 1.8% Cheltenham % 2.0% Chester % 3.0% Coventry % 2.4% Derby % 1.4% Edinburgh 15 1, % 0.3% Gatwick % 0.5% Glasgow 11 1, % 1.4% Gloucester % 0.9% Heathrow 13 2, % 0.7% Inverness % 0.5% Leeds 10 1, % 2.2% Leicester % 3.8% Liverpool 9 1, % 1.4% Maidstone % 2.2% Manchester 15 2, % 2.6% Milton Keynes % 1.4% Newcastle % -0.6% Northampton % 3.2% Norwich % 2.7% Nottingham % 3.2% Oxford % 2.2% Portsmouth % -0.2% Reading % 1.2% Sheffield % 2.9% Solihull % 2.6% Southampton % 1.7% Stratford-upon-Avon % 0.6% Swindon % 3.9% Windsor/Maidenhead % 0.8% York % 0.3%

23 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN AARR ( ) % ch CAGR Rooms yield ( ) % ch CAGR /15 CAGR /15 CAGR % 4.2% % 1.8% % 3.6% % 4.5% % 3.9% % 6.6% % 6.2% % 8.7% % 2.7% % 4.6% % 2.7% % 4.2% % 3.2% % 6.1% % 2.0% % 2.8% % 4.7% % 7.2% % 6.4% % 8.1% % 2.2% % 4.1% % 2.0% % 4.0% % 5.6% % 8.7% % 5.3% % 7.8% % 3.0% % 4.5% % 3.1% % 3.4% % -2.0% % -1.5% % 4.5% % 5.9% % 4.7% % 5.6% % 1.5% % 2.2% % 3.1% % 3.7% % 6.1% % 8.5% % 4.1% % 8.1% % 2.7% % 4.1% % 3.1% % 5.4% % 5.0% % 7.8% % 7.8% % 9.3% % 1.6% % 1.0% % 2.0% % 5.3% % 4.9% % 7.7% % 2.6% % 5.9% % 5.6% % 8.0% % 5.3% % 5.1% % 6.3% % 7.6% % 5.2% % 8.3% % 2.3% % 4.9% % 5.6% % 7.4% % 3.7% % 4.4% % 4.1% % 8.2% % 2.9% % 3.7% % 4.1% % 4.4%

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25 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN UK HOTEL TRANSACTIONS UK hotel transactions volume surpassed pre-downturn levels for the first time and hit a nine-year high at 8bn in During the first half of the year, nearly 50% of all hotel deals across Europe had taken place in the UK. Savills reported figures showing an increase of 31.6% in total transactions volume compared to North American private equity and investment funds have played a major role in 2015 transactions, targeting European hotels. Approximately 50% of regional portfolios in the UK have been acquired by North American investors. Two of the most important transactions were announced in the last quarter of the year. Marriott International agreed to buy Starwood Hotels and Resorts for a reported $12 billion. Once completed, this will create the world s largest hotel company with 1.1 million bedrooms across 5,570 hotels in more than 100 countries. The other headline transaction of 2015 was the agreement by AccorHotels to buy luxury brands Fairmont, Raffles and Swissotel for approximately 2.6 billion. Other major transactions completed in 2015 included Lone Star s acquisition of Moorfield s legacy fund assets adding Jurys Inn group for a reported 680 million and Frasers Hospitality s acquisition of Malmaison and Hotel du Vin for a reported 160 million is expected to see continued robust trading activity. We expect portfolio transactions will continue to dominate the main transactions in the UK, but economic and political uncertainties may affect investors capacity and interest in the UK hotel market with the possibility of shifting their attention to other European countries currently experiencing strong growth. FIGURE 12: UK transactions volume ( millions) London Regional UK SOURCE: Savills, BDO research 2015

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27 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN UK HOTEL DEVELOPMENT TRENDS There are currently over 24,000 rooms in the UK s active hotel pipeline expected to to be opened during 2016 and Branded hotels have a strong prevalence in the UK hotel market as well as the budget segment. UK supply has experienced significant changes over the past decade and a continuing rise in preference for branded hotels against independent properties has been observed. Certainly the larger and recognised hotel brands have more ability to respond to the current trends in the hotel industry such as the emergence of home sharing sites or the rise of OTAs. Midscale hotels have particularly suffered from the emergence of home sharing options. Table 10 shows the top five UK hotel groups by number of rooms in 2014 and Whitbread, owner of the Premier Inn brand, remains the top group by room count in the UK, with IHG and Travelodge in second and third place, respectively. The table shows how the budget segment is still prevalent in the UK. It also shows, when compared with 2014, the significant movements for the top five hotel companies in the UK during Whitbread, which experienced the highest increase in rooms above all other main companies, saw its rooms count increase by 15.5%, surpassing the 60,000 mark. TABLE 10: Top 5 UK hotel companies by room number Company Rooms % change 14/15 Whitbread 52,786 60, % IHG 39,519 42, % Travelodge 37,184 37, % Accor 26,915 29, % Hilton 24,281 26, % FIGURE 13: UK rooms supply and active pipeline by brand type 23% SOURCE: AM:PM 28% 12% 10% 28% 16% 46% 37% Independent Global and international National Other Figure 13 shows the breakdown of branded and independent bedroom supply and active pipeline in the UK. The dominance of the budget segment in the UK is notable with Whitbread and Travelodge accounting for almost 100,000 rooms and this is likely to increase as 84% of the active pipeline is to be branded hotels. Only 37% of current rooms in the UK are independent and their active pipeline only accounts for 16% of the total. SOURCE: AM:PM

28 25 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK THE RISE OF THE SHARED SPACE With currently around 31,000 listings in London alone, Airbnb stands out as the most popular shared accommodation platform in the UK. Far from being the only one of its kind, Onefinestay, Homestay, Travelmob or Tripping.com have also proved to be able to expand their listings not only across the UK but around the world recently. However, listing growth in London in just for Airbnb - was reported to have increased by 87% according to the Daily Telegraph. Growth in major European cities and London seems to have slowed now but still shows astonishing rates of growth. There has been much discussion about the effects and the level of threat this new type of accommodation has on hotels. Although it is difficult to measure the real impact it has on the hospitality industry, it is clear this alternative offers a completely new experience for tourists, and more recently business travellers too, which has proved to be very popular. The British Hospitality Association has recently developed a concerted campaign to extend hotels regulation to sharing accommodation companies. Notwithstanding the figures, there is some room for hope. According to a recent publication from Savills, Airbnb has one of the lowest rates of penetration of residential supply in London compared to other key tourist destinations. London Airbnb stock, as a proportion of residential stock available stands at 0.5%, 1.9% lower than Paris. FIGURE 14: Airbnb stock as proportion of residential stock 2.5% 2% 1.5% 2.4% 1.7% 1.6% 1.4% CROWDSOURCING HOTELS Hotel companies and real estate investors have not always been at the forefront of technology and new models have arisen recently such as the home-sharing sites previously described. As reported by Euromonitor International in the context of 2015 WTM in London, luxury hotels are turning to these alternative methods as new sources of funding (crowdfunding) and ideas/knowledge shares (crowdsourcing) to obtain finance for their properties and even their design. Some hoteliers have now started asking consumers to express their ideas for new development opportunities, with feedback being crucial for hotel design using the crowdsourcing method. Following completion of these discussions, individual investors are then able to invest capital through crowdfunding to receive benefits or free stays when visiting the hotel in the future. Amberlair, an example of a start-up aiming to open a crowdsourced luxury boutique hotel, allows investors to help choose the hotel s location and influence the design. Amberlair expressed their interest in involving guests from day one in WTM Global Trends report 2015: For many hotels, people stay there only once after finding rooms online and they do not have a relationship with the brand. Through crowdsourcing and social media, people can get more involved with the idea and the brand from day one, and put their heart in the project. Other examples across the globe are Prodigy Network, a real estate crowdfunding firm with plans to create a 194-unit space in New York. Crowdsourcing has the potential to change future hotel design and creation. Marriott International has recently explored crowdsourcing to implement innovations such as towel design in US Marriott outlets. 1% 0.9% 0.5% 0% 0.5% Paris Barcelona Amsterdam San New York London Francisco SOURCE: Savills

29 TOP 5 PREDICTIONS WE WILL SEE A PEAK TO TRANSACTION MULTIPLES The transaction market has been soaring ahead over recent years with good prices being paid for quality assets. But multiples now appear to be rather top heavy particularly when bearing in mind the anticipated new supply in the coming years. We see 2016 reaching the top of the cycle. BRANDS DOMINATING THE MARKET Brands and their franchise partners are dominating the hotel market leaving little room for the smaller, boutique operations. Over 90% of the new builds to the market will be operated under a brand badge and the virtue of the bookings engine will continue to be supported by financiers. HOTEL INDUSTRY COULD BE TRUMPED Global instability, both politically and economically, will continue to have a big impact on hotel performance. While Brexit may have the most significant impact on the UK regional hotels, the US election result is likely to have an impact on the industry, especially in London, depending on who finally makes their way into the White House. Hoteliers should brace themselves if Hillary is Trumped to the top position. 4 5 NATIONAL LIVING WAGE COSTS FACILITATED BY SERVICE CHARGE/TRONCS We may see hospitality operators covering some of the increased wages bill brought about by the introduction of the National Living Wage through their troncs or service charges. For smaller hoteliers this could be a way around the difficulties of a higher cost base with minimum external pressures for larger brands they may find the media plays a part in how successful they are in implementing such a policy. SUBCONTRACTING PICKS UP PACE The industry has already seen a move to outsource F&B operations but 2016 will see the extension of this to other areas such as housekeeping and procurement helping with the vital cost base while remaining in command of the delivery

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31 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN DISRUPTIVE FORCES SECURITY AND CONSUMER APPETITE The record number of inbound and domestic travellers in 2015 is likely to continue to have a positive effect on hotels across the UK, however, there are concerns about how hotels will be able to continue to make profits. Security and consumer appetite are two big issues hoteliers face in The Paris terrorist attacks in November 2015 significantly affected the performance of London hotels during November with a dip in occupancy of 6.5% when compared to the same period a year earlier. Provincial and London hotels continued to experience a drop in occupancy in December, with Inner London (-7.3% to 74.4%) experiencing the sharpest fall. The good performance experienced throughout the year was interrupted by the events in Paris and this is likely to continue to affect the Capital s hotels during the first half of Although London has a strong market, security threats dampen travellers appetite and can impact occupancy levels. NATIONAL LIVING WAGE The strong performance of hotels is also threatened from an operating point of view with the implications of a UK governmentimposed rise in the National Living Wage. Hoteliers admit they are still working out the consequences to their businesses of the cost increase, which will affect all businesses in the hospitality sector employing staff on the national minimum wage. As an example, Hotelanalyst reported the economic effect this measure will have on Whitbread, owner of the Premier Inn brand, and the biggest hotel group in the UK by room count. Whitbread employs over 42,000 staff according to Hotelanalyst of which 34,000 are paid the minimum wage. An increase of between 3% and 4% in their salaries could cost an excess of 15-20m to the company. Despite rising occupancy and average room rate, hoteliers will have to take these factors into account in future plans.

32 29 HOTEL BRITAIN 2016 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK WIN A ONE NIGHT STAY FOR TWO COURTESY OF FIRMDALE HOTELS AT ONE OF THEIR FABULOUS LONDON HOTELS The prize includes a one night stay for two at a Firmdale hotel in London which includes breakfast and dinner.

33 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN HOTEL BRITAIN 2016 COMPETITION ABOUT FIRMDALE Hotels should be living things not stuffy institutions maintain Tim and Kit Kemp, owners of Firmdale Hotels. There are eight boutique hotels in London and one in New York in the Firmdale portfolio and the high standards of excellence and unique townhouse style of decoration have over the years added up to a winning combination. Kit Kemp has designed the interiors of each hotel in her unique personal way which reflects a fresh, modern English style. She was named the Andrew Martin International Interior Designer of the Year in 2008 and has gone onto win many more accolades. Firmdale Hotels has received the Queens Award for Enterprise in 2000, 2006 and 2009, a recognition of its outstanding achievement to international trade and our lucky competition winner is guarantee a luxurious and unique experience. HOW TO ENTER All you need to do to enter is predict as accurately as you can the occupancy and average achieved room rate (AARR) per occupied room in BDO s sample of hotels in Britain for the 2016 calendar year. Answers should be submitted in the following format: 1) Occupancy:...% (to 1 decimal place) 2) AARR:... (to 2 decimal places) You can submit your answer at the Hotel Britain Launch Event using the slips provided, or by ing steph.hart@bdo.co.uk, with Hotel Britain 2016 Competition Entry in the subject line. Entries close on 31 May Only one entry per person. The winner will be notified by the 5 March The winner will receive a voucher valid for redemption until November 2017.

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35 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN CLAIRVOYANT CORNER FROM LAST YEAR S COMPETITION WINNER When making my prediction for 2015, I sent my entry in along with the comment I feel I may be one of the more pessimistic entries. Since then, the hotel group I was working for went into administration and was split up into individual parts through sale and I became a single site rather than a multi-site employee. If causality was in effect when that statement was made, I dare not be pessimistic about 2016! But, having seen profits and occupancy increase in 2015 in spite of insolvency, it s hard not to see 2015 as a year which proved that one s progress can be real, even if one s holding company is no longer so. In many ways, it provides a perfect example of where our industry is right now with exceptional growth in so many areas, yet with exceptional pitfalls for the unwary or over-ambitious has similar potential with the prospect of global events such as a Chinese slowdown and climate issues mixing with the chaos factor of the potential Brexit that makes the crystal ball for any proclaimed clairvoyant exceptionally cloudy. But through those clouds, rays of light continue to shine. The buoyant market for hotel acquisitions and new builds suggests a confidence that the industry is still a very good bet and, from my own experience of seeing provincial markets expand occupancy even in spite of substantial new room stock coming into the market, there is still the feeling that there is more than enough business to go around without cannibalising the fortune of others. After 12 months of retrenchment thanks to administration comes 12 months of rejuvenation thanks to new ownership, new ideas and new plans. I certainly think I ll give pessimism a miss this year. RICHARD WILSON Revenue Manager The Stanneylands

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37 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK HOTEL BRITAIN BDO LEISURE AND HOSPITALITY SERVICES Our team works with international businesses across the leisure industries, including restaurants and bars, betting and gaming, hotels, professional sports and fitness, and travel and tourism. We provide assurance, tax and advisory services to our clients who range from small owner-managed businesses to large corporations in both the private and public sectors, many of whom are market leaders. HOTELS Experience says a lot about a firm. BDO s hotel involvement stretches back almost 100 years and our London office established its sector consultancy in the early 1970s. Since then we have undertaken thousands of assignments throughout Europe, the Middle East, Africa and the Caribbean. This expertise covers the entire spectrum of investment and operating activities and our involvement brings credibility, competence and independence to any project. Our team of dedicated professionals have experience gained from a range of industry disciplines. This means that we have a wider perspective and can use their practical knowledge to achieve the best possible outcome for our clients. There is no other sector consultancy in Europe with a research and performance database that stretches back as far as ours, or contains the volume of information that we possess. Our research and publications team, and our archive facility, ensures that our clients and consultants have immediate access to the latest authoritative data. In short, if you are active in the hotel industry then you should be talking to BDO. Specialist advice we provide to the sector includes: Feasibility studies Valuations Strategic consulting Litigation support/expert witness services Transaction support Operator searches Mergers and acquisitions including MBOs, MBIs and flotations Fund raising and refinancing Financial investigations Systems reviews Turnaround and distressed situations Need analysis.