UK hotel market sees highest levels of profitability since pandemic began

The UK hotel market has seen September yield stronger results than expected with some hoteliers recording the highest level of profitability since the start of the pandemic, according to property consultancy Knight Frank.

As restrictions eased, the strength of staycation demand propelled hotel occupancy to 66.2% in August for regional UK hotels. While occupancies were underpinned by staycations, the predicted decrease in leisure demand in September was replaced with an uplift in domestic corporate demand, project work and transient business-related travel.

Regional UK hotels recorded market-wide occupancy of 67.9% for the month of September with early indications that October numbers once released will also show strong levels of demand. More importantly, confidence in the return of corporate meetings and events business was improving, with clear signs of increasing demand in the larger regional cities. Notably, year-to-date occupancy has outperformed the 2020 occupancy rate for the same period, reaching 39.4% compared to 34.1% in 2020, despite the extended lockdown at the start of the year.

For London, the pace of recovery while improving has been slower, with year-to-date occupancy reaching 21.7% versus 25.1% for the same period in 2020.

Although London's occupancy has been steadily improving each month, the city cemented its recovery with 17.6% growth in its average daily rate (ADR) performance for the month of September, following an uplift from the resumption of international visitors arriving at Heathrow Airport. In particular, strong growth in inbound arrivals to London was recorded from the USA, the Middle East and the European Union. London's ADR has grown by 48% since the end of May 2021 to £181.10 in September, 10% below the ADR achieved in September 2019.

For regional hotels, the ADR has increased by 81% since the beginning of May 2021 to £107, a 17% uplift on September 2019. The ADR across the UK has been positively impacted by the temporary reduction of VAT, realising a 3% growth in ADR and a revenue per available room (revpar) performance of £63.50, some 16% below the level achieved for September 2019.

Nevertheless, in September 2021, revpar for regional UK hotels reached its highest level since September 2019 at £72.60, while the London hotel market achieved a 37% month-on-month uplift in revpar for September to £82.70, its best performance since February 2020.

Regional UK hotels have witnessed an uplift in gross profit per available room (GOPPAR) of 30% in the two-month period of August and September, rising to £43.80 in September, on par with profits achieved in September 2019. Meanwhile, the London hotel market, where performance has been impacted much more severely than compared to regional UK, has further ground to recover. Yet, the city's GOPPAR revival has enjoyed a robust start, almost doubling in a month, rising to £48 in September 2021, but remaining 56% below its historical performance of September 2019.

Philippa Goldstein, senior analyst, hotels & leisure at Knight Frank, said: "The easing of Covid-19 restrictions and with significant pent-up leisure demand, hotel fundamentals have continued to improve during the summer months and early autumn. How the pandemic plays out this winter will be fundamental to the short-term prosperity of the UK hotel sector. With flexible room rates and free cancellation now widely available, any change in government messaging can rapidly impact upon forward bookings.

"Critical to the ongoing recovery of the sector, will be the transition from predominantly leisure-based demand, to a mix of leisure and typically higher yielding corporate, meetings and events business. The ability to secure room nights from a much broader and balanced segmentation mix is essential if the sector is to resume the year-round high levels of occupancy and ADR performance enjoyed pre-pandemic."

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