Scottish hotel sector to recover at ‘slower pace than GDP’

Scotland hotels are expected to recover at a slower pace than GDP, ashigher operating costs across the industry can cause distress.

This is according to the analysis of Commercial real estate agent Avison Young, who has suggested that large seasonal fluctuations in demand will persist until 2022, meaning profitability will remain difficult until occupancy can be maintained above approximately 50% – probably from this time next year.

The company’s AVANT data platform tracks cross-industry recovery across the UK Cities Recovery Index in 10 UK cities, including Glasgow and Edinburgh.

This shows a clear recovery momentum in the hospitality and leisure sectors since the lockdown was eased in May, with further significant growth expected over the summer and early fall, driven by domestic leisure. and a gradual return of business travel.

“We are confident that the hotel sector will rebound strongly from the pandemic and that key Scottish markets are well positioned to recover quickly once travel and events start to return,” the report reads.

He noted that if demand volumes are expected to return to pre-pandemic levels, the type and composition of that demand will change.

The mid-range and economic sectors will first recover, driven by domestic demand, the full service and luxury sectors lagging behind, in connection with the return of international travel and major events.

Hospitality businesses will also come under increasing pressure as government support measures end and the costs of supplies and personnel – limited resources and significant wage pressure – could still cause distress for less viable businesses and those who are less viable. that have historically been underinvested.

Further supply pressure could also see revenue performance continue to be affected, even if demand returns, Avison Young warned.

“Newer hotels in a good location will often outperform their older competitors, and with potential underinvestment due to the pandemic, this could become more pronounced in the short term,” the report noted.

While transaction volumes have been limited in the hotel space since the start of the pandemic – and there certainly haven’t been the levels of distress many predicted – a handful of Scottish hotels have changed hands these days. last months.

“There is a large amount of private equity ready to be placed in the industry and we are aware of a number of off-market deals being discussed,” Avison Young said. “However, there is still a gap between the buyer’s price and the supplier’s aspiration in many cases.”

The report said one of the most notable impacts of the pandemic was on leases and rents.

Travelodge entered into a voluntary corporate agreement in June 2020 to restructure its rent obligations until the end of 2021, which is impacting a large number of hotels and landlords in Scotland.

Other operators – notably Premier Inn – continued to pay rents, choosing to raise capital through stock offerings.

Avison Young has suggested that it seems likely that many operators who previously offered fixed-rent leases will turn to management or hybrid deals with a low fixed base rent and a top-up tied to revenue.

“Understanding the balance of risks and rewards on a case-by-case basis will be key to moving forward, ”, We read in the report.

Andrew Renouf, Director of Hotels and Leisure at Avison Young, said: “As we emerge from the Covid-19 pandemic, the good news is that the hotel industry in Scotland is well positioned to recover quickly once travel and international events will start to return.

“The pace of recovery in individual cities will also depend on the new offering, with a number of significant hotel developments in the works in our major cities and several expected to open over the next 12 months.

“Glasgow and Edinburgh are having a strong summer, peaking during the June bank holiday weekend and the European Championships.

“Hotels – particularly in Edinburgh, Inverness and the Highlands – are experiencing very high levels of domestic tourism demand and are able to charge rates close to pre-pandemic peaks.”

He concluded: “Overall, due to travel restrictions and social distancing guidelines remaining for some time, the hotel industry is expected to recover at a slower pace than GDP.

“Our current forecast shows that revenue per available room in Scotland will return to 2019 levels by 2024 on average, with Edinburgh somewhat earlier and leading the recovery.”

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Peter M. Doran