What we predicted

  1. Good financing conditions for core and high-quality assets would still be available, despite the recent movements in interest rates. As international travel returns, investors were optimistic this would translate into renewed investment activity in the hotels sector

What's happened so far

  • The recovery in tourism demand continued, with greater volumes of corporate meetings and events, and group travel. Good financing conditions for core,  high-quality assets and strong sponsors are still available, despite the recent movements in interest rates
  • Development funding is increasingly difficult to obtain and expensive
  • Despite improvements in ADR and occupancy, RevPAR recovery continued to be driven primarily by ADR growth
  • International travel recovery slowed slightly in Q2 however the domestic travel market remained buoyant

What happens next

  • London and metropolitan cities such as Edinburgh should continue to see strong performance in H2, supported by international travel and events such as the Edinburgh Festival and Commonwealth Games
  • Regional UK is anticipated to experience a softening in domestic leisure demand post summer break. Also, the impact of the increase in the cost of living on household incomes may constrain demand
  • Development is being impacted by increasing construction costs, lack of labour and more expensive financing
  • Potential headwinds are expected from higher operating costs, including wage inflation and utilities, but strong top line performance is enabling some hotels (upper upscale/luxury) to absorb these costs. However as volume business returns we will see top line revenues potentially come down. ADR will reduce as this volume comes back
  • Values are anticipated to see some softening by year end as a result of the rise in the cost of debt. However, this will be specific to the asset and location