"Gaining insight"

Market Review

UK GDP rose 0.7% in Q2, up from 0.4% in the first quarter. This was driven primarily by the service sector (hotels and restaurants, transport etc.), which contributed 0.5% to the overall rise. Commodities, in particular oil, continue to take a hit from excess supply coupled with weaker demand from the Eurozone and China. A stronger US dollar is adding additional pressure to the price of Brent, although the futures market predicts a price of $67 in three years’ time.

Hotel Sector

The UK hotel industry is proving to be robust amid some key structural headwinds. RevPAR growth for London and the Provinces is forecasted to grow by 4.6% (£122) and 5.4% (£57).

Going forward

RevPAR is a continual driver of deals in the hotel space. In 2008 RevPAR growth collapsed from 8% to -8%, bringing deal values with it. During the credit crunch, banks viewed hotel assets as risky, given GDP and consumer demand contracted considerably. The industry has attracted PE investment with hotels in the UK’s provinces proving to be attractive targets for cost savings and an eventual turnaround. Low borrowing costs will likely continue into 2016 but that is predicated on the notion of continued low inflation. Lower energy prices, although transitory, will keep a lid on the overall price level, yet increased consumer savings may offset this.