HOTELS

Strong growth in hotel revenues as seasonal demand and high inflation keep profit margins in check

Full recovery in profits with London and Regional UK recording GOPPAR ahead of H1-2019 performance (London +2%, Regional UK +3%)
Written By:
Philippa Goldstein, Knight Frank
3 minutes to read
Categories: Property Sector Hotels Topic Wellness World Regions UK London

For further analysis, download Knight Frank’s UK Hotel Dashboard.

We provide a detailed overview of key performance indicators for both London & Regional UK, summarising trends in revenues, expenses, and profitability. In this month’s edition we spotlight on the performance of London’s Luxury Hotel Market and Regional UK’s Golf & Spa Hotels.

Key Headlines:

  • London hotels achieved occupancy of 82% in June, a rise of 3.2 percentage points versus June-2022. But with robust seasonal demand and persistent high inflation, many hotel operators continue to pursue a strategy of rate maximisation in lieu of full occupancy recovery, recording 8.5% ADR growth in June.

  • London’s Upper-Midscale and Upscale hotels outperformed the market with a 21-percentage point uplift in H1-2023 occupancy, to 77% and 15% growth in ADR, resulting in a 57% uplift in RevPAR. This impressive performance has led to a 62% rise in the departmental operating income PAR over this same period.

  • London’s Select Service Hotels achieved its highest occupancy performance since July 2019 at over 87%.

  • London’s Luxury hotels prove they are London’s strongest positioned hotel class as a hedge against inflation, recording 10% real ADR growth for H1-2023, versus 2019 prices.

  • London’s Heathrow Airport recorded a 5.2% month-on-month uplift in overseas visitor arrivals, boosted by a 13.5% rise in passengers from Asia/ Pacific and US arrivals up 4.3%. Total overseas passenger arrivals of 6.68 million remained 1.9% below June-19.

  • Regional UK hotels achieved occupancy of 81% in June, a four-percentage point uplift on June-2022, but with the occupancy margin narrowing to 2.8 basis points versus 2019. Combined with continued strong ADR growth, this led to 13% RevPAR growth versus June-22, whilst H1-2023 RevPAR is up 19% versus H1-2022.

  • Regional UK’s Select Service Hotels outperformed the regional UK market in H1-2023, with an uplift of 26% in RevPAR versus H1-2022. This was achieved through a 10-percentage point hike in occupancy and 10% uplift in ADR. With Select Service hotels recording a 46% surge in its ADR for H1-2023 when compared to H1-2019, this equates to real ADR growth of 16%.

  • Utility costs increased by 41% in London and by 25% across regional UK in the 12 months to June, equivalent of 3.6% and 5.3% of total revenue respectively. But, with prices and consumption falling, London hotels recorded a 14% reduction PAR in June versus January 2023, whilst Regional UK hotels have seen a 34% reduction PAR over the same period.

  • Total payroll costs in London remained static in June versus the previous month, whilst a 4.7% increase was recorded across Regional UK. Year-on-year, total payroll costs PAR in London have increased by 15% versus June-2022 and by 10% in regional UK.

  • Despite rising costs, the strong revenue growth has seen resilience in terms of departmental operating income, with London recording H1-2023 growth of 37% versus H1-2022 and regional UK seeing 17% growth over the same period. Both London and Regional UK are recording departmental operating income ahead of H1-2019, up by 7% and 12% respectively.

  • For the second consecutive month, boosted by improving seasonal demand, both London and Regional UK have achieved strong GOPPAR growth. For H1-2023 London has seen GOPPAR growth of 42% versus H1-2022, whilst regional UK has recorded 16% GOPPAR growth over the same period.

  • Both London and Regional UK have made a full recovery in GOPPAR versus H1-2019, with London 2% ahead and regional UK 3% above. London achieved H1-2023 GOPPAR of £82, whilst regional UK secured a GOPP of £29 PAR. The top 12 regional city destinations in terms of RevPAR performance, have yet to make a full recovery though, with H1-2023 GOPPAR lagging by 9% versus 2019.

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