Contents
08.
Looking Further into 2022...
The UK hotel market experienced a strong and rapid recovery during the latter half of 2021, with RevPAR levels approaching 2019 figures already, highlighting the strong consumer sentiment towards hospitality and travel.
Although the rise of the Omicron variant hindered the path to recovery between December 2021 and January 2022, we are observing encouraging recovery trends across the UK hospitality sector as we move into the second quarter of the year. Accordingly, we expect most markets to reach their pre-Covid levels by the end of 2022, or possibly into early 2023 for some.
Households have also accumulated excess levels of savings over the last two years, and whilst some of this may be absorbed by rising costs of living, there is expected to be a desire to spend these savings on travel and tourism this year.
Whilst RevPAR performance is predicted to bounce back strongly throughout 2022, increasing operational costs remain a concern for the industry going forwards, particularly as hoteliers experience their first full year after the pandemic without the support of government incentives such as the furlough scheme.
City Centre vs Countryside and Coastal Destinations
❮
As international travel restrictions ease across the world in 2022, we expect overseas tourism to rebound strongly during the year, both to and from the UK.
- Major city centre locations: we expect the demand dynamics to rebalance between major city centres and countryside / coastal destinations. This will be a direct impact of international borders re-opening, with markets such as London and Edinburgh benefitting from significant rises in inbound tourism levels. This trend will also be subject to the restrictions associated with re-entering the original country of origin for tourists, which may deter some visitors from overseas travel.
- Countryside and seaside locations: whilst we expect Staycations to continue as we move into 2022’s warmer months, we do envisage a slight decline in this market as many British holidaymakers will opt for an overseas holiday during the summer period, as a result of less stringent restrictions relating to international travel.
ADR Performance
❮
- Changes in market segmentation: leisure demand has dominated the hotel industry’s recovery during 2021, positively affecting ADR performance due to the lower levels of price sensitivity relating to this particular segment. However, as corporate and MICE travel resumes in 2022, we would expect various markets reliant on these demand segments to experience a decline in the average room rate.
- VAT rate reverts to normal levels: the reduction in the rate of VAT has had a positive impact on average room rate figures during 2021. However, as the VAT rate reverts back to 20% from April 2022, we would envisage ADR levels to be impacted accordingly.
- ADR growth to manage cost inflation: it is possible that hoteliers across some markets will be targeting further ADR growth during 2022 in order to offset the inevitable rise in hotel operating costs.
Higher Operational Costs
❮
Increasing operating costs across the hospitality sector will continue to be a challenge during 2022, with the key components as follows:
- Staff wages: labour supply shortages remain a challenge across the industry and in order to attract and retain employees, average salaries are likely to increase significantly during the year. The rise in the National Minimum Wage as of April 2022 (from £8.91 to £9.50 an hour) will also impact payroll costs across hotels.
- Higher energy costs: rising energy prices have been a key challenge during the latter half of 2021 due to a a worldwide shortage in gas supplies. Energy costs will continue to soar in 2022 as the energy price cap will increase by 54% from April 2022. Whilst the ongoing sanctions against Russia are likely to push prices up even further across Europe, the impact should be far less significant for the UK, which sources the majority of their gas supplies from the North Sea and Norway.
- Government support continues to tail off: as 2022 reflects the first full year without furlough support (which ended in September 2021), together with the business rates discount falling away, hotel operating costs will continue to rise.
Whilst operational costs are estimated to increase overall, it is worth noting that the Covid-19 crisis has enabled some hoteliers to steer towards a more efficient operating model over the past two years, with hotels inevitably having to manage certain departments with limited levels of labour resource. Consequently, this trend could partially offset some increases in hotel operational costs.