Regional hotel growth set to continue in 2015

The report revealed that the UK regional hotel market achieved 9.2 per cent revenue per available room (RevPAR) gain in 2014, driven by ‘strong occupancy and growth’.

Non-bedroom revenue was boosted by recovery in meeting and events (M&E) demand, with M&E revenue per square metre of conference space up 7.6 per cent year on year in 2014 and ‘a further hike expected’.

The strong performance of regional hotels did not escape the notice of investors, with hotel transaction volumes in the regions surging to over £4bn in 2014, up 250 per cent year-on-year.

“This rise was predominantly driven by a number of regional portfolio transactions highlighting the confidence of investors to deploy significant quanta of capital into the hotel space and benefit from continued opportunity in trading performance and rising capital values,” said the report.

CBRE attributed strong 2014 UK regional hotel performance to continued economic recovery, with Britain’s GDP ahead of any other G7 counterpart in terms of 2014 growth and unemployment levels now at pre-recession levels.

2015 potential​

Looking to 2015, CBRE pointed out that inflation remains low at 0.5 per cent, which heightened household spending towards the end of 2014 and should - combined with low oil prices- drive further spend in 2015.

It added that there was considerable headroom to improve regional revenues, with occupancy now 5 percentage points ahead of pre-recession levels but RevPAR remaining 3 per cent behind.

Gross operating profit per available room (GOPPAR) remains 14 per cent behind the pre-recession peak and CBRE said falling commodity prices meant there would be scope to improve the conversion of total revenue to profit.

Robert Seabrook, executive director, CBRE Hotels, said: “From an occupancy base of over 75 per cent and apparent headroom across other metrics, provincial hotel operators have an opportunity for unconstrained performance growth with improvement in rate which will markedly boost total revenue and fall through to the bottom line.”

Supply growth​

CBRE warned that an increase in regional supply was ‘inevitable’ given the health of the UK economy, growing consumer confidence and the scope for improving hotel trading performance.

However, it added that based on completion of all developments currently in the construction pipeline, the increase would be ‘nominal' at 2.1 per cent in 2015 and 1.5 per cent in 2015.

“Considering both closures and openings across the country reveals that, throughout the course of 2013 and 2014, the number of new rooms entering the regional UK hotel market was almost evenly matched by the number of rooms closed,” said the report.

“This was largely due to a result of old stock and the potential for alternative development. With the considerable likelihood of this trend continuing, the coming years could result in low net increases in regional hotel stock and key infrastructure projects in the UK regions will undoubtedly aid absorption.”