It’s no secret that the COVID-19 pandemic created a massive impact on the hotel sector. Travelodge alone recorded a 60.9% fall in revenue during 2020 as the COVID-19 pandemic forced nearly all of its 586 strong portfolio to close its doors to guests. The hotel group kept only 50 hotels open during the pandemic – and these were for NHS workers, key workers and vulnerable groups. As a result, they underwent a CVA (corporate voluntary arrangement) that introduced rent reductions but, in return, introduced a break clause in their leases allowing landlords to terminate leases and relet hotels.  Although most landlords stuck with the brand, nine initially granted new leases to alternative hotel operators.  Similarly, Premier Inn owner, Whitbread, reported a £1bn annual loss in 2020 as sales fell by almost three-quarters as a result of COVID-19 lockdowns.

2021, however,  saw some parts of the hotel sector start to have green shoots as the ‘staycation boom’ got in full swing towards the middle of the year as consumers, starved of experiences, sought to have holidays in the UK as overseas travel was still being restricted. However, these green shoots tended to be for the holiday market only, rather than for business travel, demand for which still remained extremely muted during 2021 with fears over the costs of having to cancel conferences and meetings should Government guidance change.

Owners of vacation rentals – holiday houses and apartments – also reported a significant uptick during the ‘staycation boom’.

There is a widespread expectation in the market that the hotel sector will largely recover in 2022.  PwC, in their ‘Hotels Forecast 2021 – 2022’ report have reinforced the green shoots of recovery as demand continued to return into late 2021 and early 2022. At the end of 2021 they were forecasting that, whilst performance was not expected to return to pre-pandemic levels even by Q4 2022, there were finally ‘encouraging signs’ for hoteliers.  

Research undertaken by PwC in their latest report found that 63% of people said they plan to take more or the same number of holidays next year, with occupancy expected to reach between 70% and 90% of pre-pandemic levels in London. In the regions, this forecast is even higher at 87% and 96% by year end.

However, there are also some clouds on the horizon for the hotel sector. There is a continuing rising payroll cost, as across most hospitality businesses at present, which is expected to only continue into 2022 as a result of labour shortages, leading to an above inflation increases. In addition, the majority of government financial support during the pandemic has now ended, with the tenant eviction ban also ending this month.  Those hotel operators that have got depleted balance sheets may find that this becomes a bridge too far for their continued operation if the recovery doesn’t pick up significantly this year.

The speed of recovery is likely to be the major issue for the sector in 2022. Driven by factors outside of the sector’s control, the pace and size of the return of tourism, and events occurring on the world-wide stage are likely to determine the speed and extent of the recovery. The obvious cloud on the horizon for this is Russia’s recent invasion of Ukraine. Whilst confined to that region at present, it is a not yet known how this situation might escalate and the effect that may have on consumers’ attitude to travel for the foreseeable future. (Of course, if that does escalate perhaps one of our more minor concerns will be going on holiday……?)  

The luxury hotel market has seen occupancy as low as 18% in 2021, and this market’s recovery will very much depend on global tourism and air travel passenger numbers returning. More countries are opening their borders and the UK government is assisting this by freeing up air travel restrictions as part of their “Living with Covid” plan, but global events may work against overseas travel returning in the very near future.

However, out of problems come opportunities, and one such opportunity in 2022 would appear to be the rise of the ‘aparthotel’.  The ‘aparthotel’ (or apartment hotel) has become a hot commodity as hoteliers work to compete with service offers such as Airbnb, and in order to accommodate customers’ increased social distancing requirements.

Over the last decade, Airbnb, which obviously owns no actual rental real estate, has sought to disrupt the traditional hotel industry and by and large has been successful in doing so. A crazy fact that I discovered, is that Airbnb generates more money in the US than Hilton, the world’s second largest hotel group and Airbnb now accounts for 20% of consumer stays in the US market and continues to grow at a faster rate than the worlds three largest hotel chains.  Wow!

Airbnb’s growth has had a significant impact on hotel revenues. Research from Florida State University, Boston University and Texas A and M University found that for every 1% increase in the number of Airbnb properties available in a market, the hotel industry saw average revenues per room decrease by 0.02%.  Airbnb’s success is largely down to the value for money offers and the fact it offers both access to unique accommodation – when the customer has grown tired of identikit hotel rooms – and access to self-contained accommodation with a kitchen.

The success of Airbnb has drawn attention to the aparthotel concept – a hybrid of the traditional hotel environment and the home-like accommodation offered by brokers such as Airbnb.  Aparthotels offer more than the bed, bathroom, and desk that you find it in more traditional hotel rooms. In many aparthotels across the UK guests can expect fully equipped kitchens, flatscreen TVs, fast and secure Wi-Fi, and access to washing machines, dryers, and dishwashers. These in-room amenities are offered alongside a full hotel experience with guests able to enjoy access to bars and restaurants as well as fitness and wellness facilities

The demand for the aparthotel sector therefore is growing due to the flexibility, privacy, amenities and modern conveniences on offer within the comfort of apartments. Serviced apartments and aparthotels are now the fastest growing segment of the U.K.’s hospitality accommodation market.   Whilst the aparthotel sector and service department sector make up just 3% of the U.K.’s total available hospitality accommodation it accounts for 13% of the UK’s active development pipeline, with plans to build 6,000 new units over the next few years. In the US, however, the serviced accommodation and aparthotel sector has a 9% market share – the UK has some way to catch up to this and this would seem a huge opportunity in the current market.

Aparthotels also seem to have escaped much of the damage caused by COVID-19. The majority of the aparthotel locations across portfolios were able to remain open throughout lockdown as a safe space for long-term residents and key workers. In some ways, aparthotels have benefitted from the pandemic with average stays having risen from circa 11 nights to 40. It is predicted that aparthotels will see further growth as travel habits, demands and expectations change.

There are obviously several different types of hotels in the UK market – ranging from the budget hotel chains (who have taken so much real estate in the 2010’s) to the mid-range and the luxury hotel groups.  The disruption being caused by Airbnb, serviced accommodation and aparthotels is causing an additional layer of competition to hotel chains struggling to build their businesses back after the pandemic.  In these Covid times guests prioritise their health and safety and aparthotels and serviced accommodation often blend this with the luxury of a boutique hotel plus the privacy of an apartment – and this caters to customers’ needs by offering the best of both worlds.

The next move is that of hotel groups – how are they going to differentiate their offers by catering to changing customer requirements?  Let’s wait and see what 2022 brings……