UK Hotel Market

Covid-19 Impact & Recovery

November 2020

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COVID-19 - Impact on the UK Hotel Sector

Foreword

The ongoing COVID-19 pandemic has caused social and economic disruption on a global scale and brought the international travel, tourism, airline and hotel
sectors to a virtual standstill. The constant changes in the evolution and suppression of the virus’ continued rampage, opening and closing of countries’ borders,
creation of temporary travel corridors and, imposing and lifting of quarantine requirements has made international and inter-regional travel extremely difficult
across Europe. This makes it extremely challenging for businesses to plan ahead, with booking windows for guests greatly reduced. Operators have had to
continually adapt their businesses to comply with government intervention and ensure the safety of their guests as much as possible, all the while with limited
certainty on when demand will bounce back and how the recovery will look.
This document aims to set out the key milestones of the past 9 months, how they have affected the hotel sector and what this means for the transactional market.
The hotel team at Christie & Co have been active during this entire time, and we’ve outlined our experience of the impact that this disease and its preventative
measures have had on the sector. We hope that the following pages serve as a useful guide when looking to understand some of the impact that COVID-19 has had
on the UK’s hotel businesses:

03 Timeline of Key Events Since February 2020

04 Impact on Operations and Performance
05 Performance Variances across Markets
06 Market Demand Composition Matrix
07 Transactional Environment
08 Transaction Market Outlook through to 2021
09 Christie & Co Hotel Team

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COVID-19 - Impact on the UK Hotel Sector

Timeline of Key Events Since February 2020

A year of turbulence for the industry
Although the severity of the situation was not fully apparent and the UK’s national lockdown not put in place until the end of March, from mid-February the hotel industry began to see
the cancellation of major international conferences across Europe and restrictions being placed on corporate travel by employers. The UK did not impose border closure or control as
soon as others, but many countries did so, severely reducing international travel.
Hotels were required to close from the end of March, the only exception being those that were housing key workers. Whilst many remained closed throughout, some were able to find
opportunities to let entire properties to accommodate NHS workers, or to provide temporary shelter for the homeless. Others continued to function with the reduced demand base of
key workers only (such as NHS, logistics, infrastructure, government) working at low occupancies, with reduced workforces and very limited Food & Beverage and ancillary services.
The industry saw brief respite in the summer months as trading picked up slightly, but now that demand has faded and further restrictions have come into place, the outlook is
challenging for many until a vaccine becomes available and international travel and quarantine restrictions lift completely. The extension of the support measures in place is deemed
insufficient by many.
25th 20th 23rd 24st 20th 19th 10th 5th
February March March March May June July November

Chancellor Government 2nd “social”

Government
Government Government Due to national announces extends national
introduces Various
imposes outlines lockdown, hotels “Future Fund” for moratorium on lockdown –
moratorium on international
quarantine for measures for are told to close, businesses lease forfeiture hotels remain
lease forfeiture travel air bridges
travellers from “furlough unless open for unable to access till the end of open for
for commercial support from are opened
Italy and China scheme” key workers September business
tenants other schemes 2020 travellers

Key:
Government Changes to Hotels are
Tightening Extension of
introduces Government furlough allowed to open
restrictions Three-tiered 80% furlough
Coronavirus extends scheme: with social
lockdown scheme until the
Business furlough employers distancing rules
strategy is end of March
Interruption scheme until required to and cleaning
Loosening introduced 2021 (Jan
Loan Scheme October contribute from protocols in
restrictions review)
(CBILS) August place

Government
support 23rd 12th 29th 4th 12th 6th
March May May July October November

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COVID-19 - Impact on the UK Hotel Sector

Impact on Operations and Performance

Major disruption of levels previously unseen in the industry
At the lowest point it is estimated that only 50% of the UK’s hotel rooms remained open. Although extremely challenging to operate during the national lockdown, remaining open to
key workers allowed some hoteliers to be more prepared and ready to operate in a Covid environment with safety measures in place once the wider sector was able to open to the
public on 4th July. Throughout July the number of hotels open gradually increased to reach over 90% of total room supply in August and September. Since the second national lockdown
was introduced on 5th November we are seeing signs that the number of hotels open is falling again.
From early spring 2020, performance across the UK and continental Europe saw one of the most drastic declines recorded in the industry, with RevPAR (Revenue Per Available Room, a
key performance metric for the industry) in the UK down by c.80% for four months in a row compared to the previous year, and even further in London. Occupancies in most areas have
struggled at below 30% throughout the spring and beyond. This has eased slightly over the summer, in regional leisure destinations in particular, but overall performance is still
considerably behind where it would normally be.
Whilst the Coronavirus Job Support Scheme, Business Rates holiday and deferral of VAT obligations helped compensate hoteliers for some of their fixed and payroll-related expenses,
other operating costs have seen increases due to purchasing of PPE, additional cleaning, changes to F&B operations requiring table service and limiting the number of covers, and
other measures which required a shift in operating and safety standards. As a result, many have needed to call upon the government-backed loans schemes to tide them over this
difficult period, and in some cases necessitating difficult conversations with landlords and lenders.

RevPAR Performance Trend (YoY % Change) Reopening Trend across the UK (Based on Trading Rooms as % of Total Supply)

20% Hotels are allowed to

100% open to the public
0%
90%

-20%
80%

-40% 70%

-60% 60%

50%
-80%

40%
-100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct 30%
April May June July August September October
London Regional UK UK
United Kingdom London Regional UK

Source: STR, AM:PM, Christie & Co Research and Analysis 4

COVID-19 - Impact on the UK Hotel Sector

Performance Variances across Markets

Leisure destinations have been the winners over the summer
Since the re-opening of hotels was permitted on 4th July, there has been a stark contrast in performance between major leisure destinations and “Coast and Country” properties
compared to business-driven city centres. A number of coastal towns have seen very healthy occupancy levels over the summer months and continuing into the autumn and through
half term, with some reporting a better summer season than in previous years. Destinations that are more reliant on international and business travel have continued to struggle with
low occupancies and as the leisure season has tapered off and corporate travel remains subdued, we see increasing temporary closures in cities where demand in insufficient to cover
running costs and allow hotels to function at break-even.
Actual Occupancy – May Actual Occupancy – August Actual Occupancy – October

<25%

25% - 40%

40% - 55%

55% - 70%

70% +

Source: STR, Christie & Co Research and Analysis 5

COVID-19 - Impact on the UK Hotel Sector

Market Demand Composition Matrix

Hotel demand profile a key factor in understanding recovery
Recovery expectations vary widely from asset International demand will
Pick up during summer
to asset and from one market to another. A be slow to recover
period/weekends
key factor is the demand mix, both for the impacting performance
individual asset and for the wider market. Leisure
Those with a higher concentration of Blackpool
domestic and leisure visitation are expected Edinburgh Bournemouth
to recover faster, with those more reliant on Bath
Brighton York
international travellers, conference and
events and business demand likely to see a
slower return of their core customer bases. Bradford
Plymouth
Hotels with greater focus on rooms revenues Oxford Liverpool
will be able to recover better than businesses Glasgow Cardiff
that rely heavily on F&B and events revenues Norwich
London
where restrictions mean some outlets are not
Newcastle
able to trade. Leeds
Cambridge
Serviced apartments, where guests are able International Nottingham Domestic
to cater for themselves and have less Bristol
interaction with other guests, are also Sheffield
Manchester
expected to continue to outperform the rest
of the market. Southampton
Those reliant on group travel, older Aberdeen
demographics, coach tours and hostels with
large shared rooms will take longer to return
to normal than those which appeal more to Coventry
the individual traveller and affluent
Birmingham
demographics.
The perception of hygiene measures in place Business
will also be an important part of being able to Reliance on Corp/MICE
Long-stay business is
attract guests back once restrictions allow, Likely shift in
more resilient
and may favour brands and properties which segmentation short term
are marketing this aspect.
Bubble size indicates the % of pipeline currently under construction out of total room supply
Note: Leisure includes trips taken for holiday and visiting friends and relatives

Source: GBTR, IPS, AM:PM, Christie & Co Research and Analysis 6

COVID-19 - Impact on the UK Hotel Sector

Transactional Environment
Shift in focus towards regional assets and domestic buyers
Since the start of the first lockdown, the transactional market has faced significant challenges, due to limitations on travel for international buyers, and access to properties for due
diligence purposes which led to a hiatus of deals and limits on access to financing. The market became more active from June onwards, and whilst volumes were still limited, there was
a significant improvement on Q2.
There is a notable shift towards regional transactions, where buyers tend to be more domestic and in many cases able to complete the transactions without bank financing. Financing
for new deals from the high-street lenders remains more limited than pre-Covid as they are focused mainly on supporting existing customers, but we understand some are still open for
new business with modifications and additional protections in place on the loan structures. Alternative lenders and a growing number of debt funds are another option which is
expected to become more important to the sector.
Buyer appetite for hotels remains strong despite the uncertain outlook for trading in the short to medium term, but so far limited new stock and opportunities of size have been
coming to market. Much of the stock that transacted over recent months was already on the market pre-Covid. Many sellers remain reluctant to put their properties on the market
either due to lack of awareness that there are still buyers in the market, or due to an anticipated discount on pricing expectations from buyers.
The ongoing government support, constructive approach of lenders, suspension of lease forfeiture and creditor’s winding up petitions and, in some leisure destinations, record levels
of demand over the summer months has enabled hoteliers to survive thus far. Whilst these factors have impacted distressed sales coming through in volume, we have seen some
consensual sales processes, led by the lenders, coming to market.

Quarterly UK Hotel Investment Trends Quarterly Hotel Investment Volume Distribution

3,000

2,500 2%
20
0
10
0%

15% 13%
21%
43% 36%
2,000 45%
80
%

56% 51% 52%

15
0

64% 62% 70%

1,500 60
% 76% 50% 40%
91% 95%
116
10
0

87%
1,000 40
%

86 91 87
57% 64%
75 72 55%
63
50

44% 48% 48%

500 58 35% 36% 38% 39%
20
%

43 48 24% 30%
33 40 9 21
23 9% 5%
- 0 0%

-22.3%
Q1 17

Q2 17

Q3 17

Q4 17

Q1 18

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Q3 20
Q1 17

Q2 17

Q3 17

Q4 17

Q1 18

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Q3 20

-56%
-62.4%
Total Investment Volume (£m) Properties London Regional UK Undisclosed/Not confirmed

Source: Real Capital Analytics www.rcanalytics.com, Christie & Co Analysis 7

COVID-19 - Impact on the UK Hotel Sector

Transactional Market Outlook

Opportunities expected to be unlocked in 2021

Q3 2020 Q4 2020 Q1 2021 Q2 2021

- Single regional - Trading - Government - Increased

and rural assets stagnating after support volume of
trading summer season initiatives phase distressed sales
- Mainly local and - Lockdown 2.0 in out end of Q1 - Banks take
individual well- place until 2nd - Individual assets further action
funded buyers December and small - Frustrated
- Limited - Further portfolios may to capital may
opportunities of restrictions come to market begin to see
scale continue to - Many more
- Significant impact transactions will opportunities
frustrated capital businesses still be too small - More stock may
with access to - Major for some come to market
debt chasing investment investors but likely to be of
limited stock opportunities - Progress on limited scale and
- High level of remain limited vaccination volume
competition for - Some signs of should
few consensual sales accelerate
opportunities for portfolios recovery
(e.g. Project emerging –
Links Travelodge typically lender
Portfolio) led

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COVID-19 - Impact on the UK Hotel Sector

Christie & Co Hotel Team

COVID-19 has led to significant disruption within the sector, and Carine Bonnejean
we share the concerns of owners and operators. Our team of Managing Director – Hotels
professional advisors are on hand to support you through the T: +44 207 227 0714
challenges of the current market environment: M: +44 7921 063 548
E: carine.bonnejean@christie.com

Jeremy Jones Olivia Chaplin

Head of Brokerage - Hotels Director – Consultancy
T: +44 207 227 0755 T: +44 20 7227 0740
M: +44 7764 241 284 M: +44 7592 775 311
E: jeremy.jones@christie.com E: olivia.chaplin@christie.com

Alex Campbell Sarah Hart

Director – Hotels Associate Director – Lease Advisory
T: +44 207 227 0727 T: +44 20 7227 0770
M: +44 7714 138 985 M: +44 7917 168 490
E: alex.campbell@christie.com E: sarah.hart@christie.com

Alastair Hockley Tobias Reinecke

Director – Valuations Associate Director – Consultancy
T: +44 207 227 0734 T: +44 207 227 0724
M: +44 7714 138 983 M: +44 7701 214 226
E: alastair.hockley@christie.com E: tobias.reinecke@christie.com

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COVID-19 - Impact on the UK Hotel Sector

Christie & Co
Whitefriars House 6 Carmelite Street London EC4Y 0BS
T +44 (0) 20 7227 0700 F +44 (0) 20 7227 0701

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