Strong leisure demand boosts RevPAR, propelling solid growth in London and steady regional trading
A resilient UK Hotel Sector sees robust growth in GOPPAR in London and the Top 20 Regional UK Cities outperforming the total regional UK hotel market.
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A review of the Top 20 Regional UK Cities, by reference to Hotel TRevPAR (Total Revenue per available room), reveals how this consolidated set of hotels outperforms the Total Regional UK hotel market across all key performance indicators by a considerable margin.
The analysis published in Knight Frank’s annual publication “The UK Hotel Trading Performance Review 2018”, over the rolling 12-month period to October 2018, shows market wide occupancy of 80.6%, an average room rate of £95.6 and RevPAR of £77.0 for the Top 20 Regional UK cities.
Crowne Plaza Manchester – Oxford Road (Opened September 2018)
In partnership with HotStats, a leading sector specialist in the provision of hotel benchmarking services, our analysis reveals that in terms of RevPAR performance, the Top 20 regional UK hotels achieved a penetration index of 116% versus the Total Regional UK market, with annual RevPAR growth of 2.7% recorded, compared to only 1.9% RevPAR growth for the total regional UK hotel market.
The TRevPAR penetration index, however, declined to 103%, indicating that the capture of ancillary spend in the food & beverage department is much more significant in locations outside of city centre destinations.
Nevertheless, with profitability in the rooms department for the Top 20 regional UK hotels significantly higher, at 79% compared to only 73% rooms profit contribution for all regional UK hotels, this results in a strong GOPPAR penetration index of 118%. This uplift in GOPPAR equates to a respectable GOP margin of 37% for the Top 20 regional UK cities, compared to 32% across the whole of the regional UK.
Payroll costs equate to 27% of total revenue for the Top 20 regional UK hotels, versus 31% for regional UK. With strong demand for hospitality workers, there is however cause for concern for city centre hotels, with the annual increase in payroll costs at 2.2% per annum for the Top 20 regional UK cities, rising at a faster pace than the regional UK average at 1.4% per annum.
The performance of the Top 20 regional UK cities is even more pronounced versus regional UK’s other secondary city destinations, achieving a RevPAR penetration of 136% and a GOPPAR penetration of 159% for the same rolling 12-month period to October 2018.
Whilst an understanding of the entire UK regional market provides a useful comparison, Knight Frank’s detailed analysis on a micro level confirms that all too often the performance trends of key geographical locations or different asset classes remain opaque.
London has outpaced provincial markets with a 3.8% rise in RevPAR as at October YTD 2018, achieved through a 1.8% point increase in occupancy and ADR growth of 1.6%.
The London market achieved only marginal or no growth for the first six months of 2018, however, since the beginning of the summer, the performance of London’s upper-upscale and luxury hotels have rebounded strongly, achieving RevPAR growth as at October YTD of 4.5% and 4.9% respectively.
Novotel London Heathrow (Opened January 2018)
The overriding trend in the UK in 2018, in terms of revenue drivers, is that across all markets, there has been strong growth in leisure demand both in London & regional UK. In regional UK, a fall in conference and corporate demand has been compensated by the increase in leisure demand, which has resulted in a two percentage point change in the leisure segmentation mix.
The Top 20 UK regional cities have witnessed an even greater variation, with the leisure mix rising by 3.7% points. London has seen a 3.1% point change in the market share of leisure room nights, with the shift even more intense in London’s luxury hotel market, resulting in a 6.1% point change for the leisure segment.
Through active yield management, the strong demand for higher paying individual leisure guests has been captured, squeezing out the lower rated tour operator segment, whilst enjoying relatively stable trade in both conference and corporate demand.
Changes in demand resulting in an alteration of the segmentation mix has been one of the main catalysts to slower growth rates in 2018, particularly so with respect to ADR growth.
With London and regional hotels generating 85% and 73% of their total profit from the Rooms department, the importance of achieving respectable RevPAR growth cannot be overstated, particularly in a climate of rising costs.
In London, investors have continued to experience improved returns, with GOPPAR growth in London of 2.7% achieved YTD to October 2018, rising by 3.7% and 3.5% respectively for London’s luxury and London’s upscale hotels. Whilst in regional UK, with lower growth rates in revenues and rising costs, only marginal growth rates in GOPPAR have been achieved.
Moxy Glasgow Merchant City (Opened November 2018)
Despite the challenging trading environment which is expected to continue, we retain a cautious yet optimistic outlook for 2019.
Having a well-defined, flexible set of market segments and a strong insight into the distribution channels of each segment, combined with the control of all cost centres, with particular emphasis on engineering staffing levels to meet the demands of the business, these factors combined will all become essential components in safe guarding and maximising a hotel’s profitability.
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