Contents
07.
Key Themes in 2021
We look at some key themes within the hospitality industry during 2021, as well as factors that have shaped the recovery of the sector:
ADR recovery ahead of occupancy
❮
We have observed that average room rates have recovered at a much faster pace when compared to occupancy levels during 2021. In fact, ADR growth across the UK outstripped inflation during the year. We attribute this to various factors:
- VAT reduction: the UK government announced a temporary 5% reduced rate of VAT up until September 2021 and 12.5% between October and March 2022. We observe that this incentive has played a key role in maintaining hotel ADR levels across the country.
- The Staycation effect: with international travel experiencing various degrees of restrictions during the year, British holidaymakers continued to opt for domestic vacations. With many Staycation hotspots therefore facing extremely high levels of demand during the peak summer season, we observe that local hoteliers have capitalised on this opportunity by increasing their average room rates to surpass 2019 figures.
- Higher consumer spending: as highlighted in our UK Staycation article last year, the Covid-19 pandemic has led to an excess stock of accumulated household savings. In 2021, savings were 138% higher than in 2019 and as a percentage of UK’s GDP, total savings amounted to 8% in 2021, compared to around just 3% between 2017 and 2019. With larger savings and the easing of Covid-19 restrictions, people’s willingness to pay higher prices for hotel rooms during 2021 has increased, consequently enabling ADRs across the UK to remain stable, or in some markets even surpass 2019 levels.
ADR Growth vs Inflation in 2021
Source: STR, a CoStar Group Company and Oxford Economics
UK Household Savings (ratio and values in billion), 2019 vs 2021
Source: Oxford Economics
Labour supply challenges
❮
The UK has experienced severe staff shortages during 2021, which has been particularly pertinent to the hospitality industry, with hotels across the country struggling to recruit across both back and front of house departments such as housekeeping and food and beverage. Whilst we deem Brexit to play a secondary role in this, we consider the primary reason to be the Covid-19 pandemic, with long periods of unemployment for many foreign workers encouraging them to relocate back to their home countries. Temporary staff absences have also been a key theme during 2021 as a result of Covid-19 restrictions such as self isolation.
Government incentives supporting profitability
❮
Various incentive packages were announced during the year to support hospitality businesses, including the furlough scheme extended up until September 2021, a temporary discount in business rates and a reduced rate of VAT, which have in turn supported profitability levels during the year.
REPUBLICATION OR OTHER RE-USE OF THIS DATA WITHOUT THE EXPRESS WRITTEN PERMISSION OF STR IS STRICTLY PROHIBITED