That’s according to the latest Hotel Bulletin, published by HVS, Zolfo Cooper and AM:PM, which found that the second quarter of the year was a successful one for UK hotels - with London and most of the regions recording RevPAR increases.
RevPAR in the capital rose by 5 per cent in Q2 – with the increase exaggerated by the absence of the Diamond Jubilee celebrations. Meanwhile, the debt market seems to be widening and the gap in valuation expectation is continuing to narrow.
The regions returned to profitability growth in the second quarter for the first time since the downturn on a LTM basis. This has been driven by continued increases in RevPAR, payroll efficiencies and a decline in commission paid to travel agents in the second quarter.
"The performance improvement comes as a welcome relief for hotels in the regions,” said HVS director Tim Smith. “We need this to continue for a few months to have an impact on both the top and bottom lines, and more importantly increase confidence for both operators and investors. Only then will the recovery be truly underway.
“The lack of new openings is the calm following the storm of openings in 2012. There are plenty of hotels in the pipeline, so this is a blip rather than a trend.
"The budget brands continue to dominate the new build pipelines as they are occupied under leases so have been able to secure funding in the recent past. This is likely to continue until development funding is widely available, which will only happen when confidence returns, which in turn is dependent on a sustained improvement in trading.
"Debt funders are slowly returning to the market and widening the number and type of hotels they will consider funding; there is still a long way to go. Other debt providers, such as insurance companies are slowly entering the real estate market, but are yet to show any interest in hotels.”
In the pipeline
New supply levels in the second quarter remained subdued in comparison to 2012, found the report. Low supply levels are not indicative of the longer term trends in market size, though, with 28,092 bedrooms remaining in the active pipeline.
Following such a strong first quarter, Aston Hotels was the only portfolio transaction to complete in the previous three months. There were, however, a number of single-asset sales suggesting that the gap in valuation expectation is continuing to narrow.
Meanwhile, the debt market for hotels is widening to include alternative providers such as debt funds, credit investors and family offices attracted by the cash generative and asset-backed nature of hotel assets.