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Double digit growth for UK’s hotels, but room rates beginning to plateau, says Hotel Bulletin

The UK’s hotels saw average RevPAR grow by double digits in the last trading quarter of 2014, according to the latest Hotel Bulletin: Q4 2014 published this week by HVS, Zolfo Cooper and AM:PM.
The Bulletin reveals hotels across 12 key UK cities surpassed pre-downturn RevPAR (revenue per available rooms) with a 19% average year-on-year increase. Only Belfast, Birmingham and Newcastle were marginally short of this goal.

“The strong performance by UK hotels should have resulted in improved profitability and helped to boost values. We would expect this to be sustained throughout 2015 and potentially beyond with the sector remaining attractive to investors,” commented HVS chairman Russell Kett.

“A number of high profile events in the UK this year will help boost occupancy levels as will the fall in fuel prices which gives consumers more disposable income. The outcome of the General Election in May could also provide stimulus to investors’ confidence,” he said.

However, there are initial signs that the hotel market is seeing performance maturity as occupancy growth begins to plateau. Increased competition from new supply is also likely to make growth more challenging and this may prompt some investors to consider selling.

“As occupancy starts to level out the emphasis for operators now has to be on improving achieved room rates, although this is more difficult in areas where there is strong growth in supply,” said Kett.

In terms of new builds, it is still budget hotels that dominate UK hotel development with the sector representing 34% of current supply and 47% of the market’s active pipeline.

Travelodge, for example, opened 506 rooms in the first three quarters of 2014 with 1,400 in its opening pipeline for 2015. The brand has recently announced plans to spend £1.3bn on expansion this year, with 205 new sites in London and the southeast.

Premier Inn continues to increase its market share, opening 10 new sites (1,043 bedrooms) in the last quarter of 2014 alone, including its first bedroom hub in London’s Covent Garden.

“The market for budget hotels continues to grow as guests, both leisure and business, maintain a tight rein on their accommodation budget and are reluctant to pay for amenities they won’t use,” added Russell Kett.

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