After Brexit, What Will 2017 Bring for London Hotels?

Britain’s voting public opted to leave the European Union in a landmark vote that is likely to have huge ramifications for all business segments. The U.K.’s hotels industry will likely be at the frontline of fallout from the vote, with London’s hotels potentially feeling the biggest impact.

STR and Tourism Economics released data at the start of June highlighting the dip many London hoteliers have been experiencing in 2016 so far. Following the vote to leave, will this decline continue?

London’s Hotels in Decline

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London had posted year-on-year growth in RevPAR for six consecutive years since 2010, but this all changed in 2016, with STR reporting a 3.2 percent drop in London RevPAR to £95.60 ($140) for the second quarter of 2016.

Further declines have been seen in average daily rate, which dropped 0.5 percent to £128.34 ($188), while occupancy declined 2.7 percent to 74.5 percent. London has been seeing a steady drop in occupancy rates since November 2015.

London’s figures for 2015 were possibly skewed by the fact that the city hosted several major events, which will not be repeated in 2016, including the Rugby World Cup, the Ashes cricket series and the biennial Defence & Security Equipment International (DSEI). All of these events would have bolstered occupancy and RevPAR for the year.

In addition, London and the rest of the U.K. market were undoubtedly in limbo in the run up to the E.U. Referendum. STR speculated in its report that a “leave” result could be detrimental to London’s hotel market, but how detrimental is anybody’s guess.

Hearing from hoteliers ahead of the vote, many were naturally wary on what a “leave” vote would mean for business in the U.K.’s capital. Some said it would represent their worst nightmare, as forecast exchange rate fluctuations and drops in occupancy—triggered by less trade with the U.K. and a decline in foreign investment—would severely impact revenue.

Industry analysts pointed to a leave vote damaging the hotel workforce, which has a high percentage of foreign workers. This is due to the U.K. having a low hospitality vocation. Without access to the E.U. talent pool, hotels could experience difficulties recruiting hospitality professionals from the domestic market, although access to non-E.U. labour may now be made easier.

The European Scenario

Data from STR on the state of the European hotels industry points to an uplift in 2016, with Q1 2016 data showing a 3.1 percent increase in RevPAR to €62.94 ($71), a 2.3 percent increase in ADR to €102.98 ($116) and an 0.8 percent increase in occupancy to 61.1 percent.

Notable increases were seen in Croatia, which saw double-digit growth across all three key performance metrics, with RevPAR jumping 33.3 percent in Q1 2016. Germany reported a record month in March 2016, recording its highest ADR (€101.58, $115) and RevPAR (€67.96, $77) for the month.

Amsterdam in the Netherlands also reported a record month for March, with a 25.8 percent increase in RevPAR, due in part to the Food Festival Amsterdam taking place during the month.

Meanwhile, Ireland saw a 17.6 percent increase in ADR to €107.84 ($122) and a 23.3 percent increase in RevPAR to €71.63 ($80).

While not many of Europe’s markets can command the RevPAR and ADR of London properties, this data does show positive growth across the continent.