London hotels braced for ‘stormy’ 2019

Sunday 16 December 2018

ZIP by Premier Inn © Whitbread Plc

London’s hotels are in for some ‘stormier’ skies next year and beyond as uncertainties over Brexit and dwindling business travel threaten to affect the market.

That’s according to Liz Hall of Liz Hall Hotel & Travel Consulting as she took her audience through the state of the sector in a breakfast talk at NLA.

Hall said that these are ‘volatile times’ for the economy and in a sector that has also been hit by the ‘pain’ of a shortage of skilled labour, rises in payroll and other costs, the apprenticeship levy, pension auto-enrolment and business rates.

Despite a largely sustained rise since the financial crisis 10 years ago and hotels thriving, especially in the ‘dynamic’ budget sector, growth is slowing and business travel in particular has dropped, largely as a result of Brexit uncertainty. However, demand is ‘broadly positive, but not without concerns’, with 1.3bn international visits in 2017 – twice as many that came in 2000. Visit Britain is forecasting 4% growth next year, the weak pound helping to stimulate that situation. But the UK slowdown and economy squeeze is ‘not necessarily good news for UK hotels’ with a squeeze on rates and no ‘mega-events’ in the short-term future driving demand for beds. One four star hotel operator had told Hall that they were paying 3-4 more times as much to get housekeeping staff, and while there was still an EU pool, it was a diminishing one. Hotels are also having to compete against other areas like serviced apartments home-share, hostels and Airbnb, all of which are ‘evolving’. But although sites remain very scarce there is still scope for more conversions – some 50% of the rooms added in 2018 came from office conversions. Around 20,000 new rooms opened from 2014 to 2018, with 70% of the 8,000 new rooms since the start of 2017 being budget rooms, itself putting pressure on the mid-market.

Another sign of the times, said Hall, was that the biggest hotel in London – the Holiday Inn in Kensington – wants to demolish its 900 room building and rebuild with 749 rooms and 340 serviced apartments.

Occupancy could ‘struggle’ in 2019, suggested Hall, PwC forecasting a ‘marginal decline’, with room rates only forecast to grow modestly, with Hall’s model on long term trends showing some economic growth, but making quite a big assumption that there is a deal for Brexit.

Whitbread is one operator that remains active in this market, however. Property acquisitions director Jo Moon said that the group has ‘massive ambitious growth plans’ for the UK, and a ‘runway’ that looks bigger than the firm’s projection of having 85,000 rooms by 2020. London is a ‘fantastic market’ for the group, opening over 4,000 new Premier Inn bedrooms in the capital over the last three years, but it is also highly competitive, with student accommodation proving a formidable competitor. Planning is also proving more difficult, said Moon, in what was traditionally a non-contentious sector. The firm is also hoping to progress its Hub brand in London, with seven in existence and seven more in the pipeline, along with Zip – its no-frills compact rooms model, more geared to provincial cities and zones 3-5. ‘the property market has been incredibly receptive’, said Moon. ‘We have been inundated with sites’

Elementa principal David Glossop showed his company’s approach to hotel design and WELL principles, partially through the Lincoln’s Inn Fields Hotel, before Make lead project architect Katy Gharremani showed the practice’s own designs to rejuvenate Hornsey Town Hall in Crouch End. The scheme, a listed 1930s building which the architects plan to take off Historic England’s At Risk Register through a £20m project paid for by the creation of new housing, allowing for a new hotel with Art Deco feel, bars, offices, conference rooms and public space. ‘This is, I think, how hotels are going to evolve’ said Gharremani, ‘in a true, mixed use sense of place…This is what will make it attractive to stay in because it will feel like part of the community’.

By David Taylor, Editor, NLQ

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