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   Facing the future  A question of balance September 2016: While the full impact of the UK vote to leave the EU will not be known for some time, economic growth is expected to slow. A weak pound should provide a boost to inbound leisure travel, but security concerns, tight corporate travel budgets, above average supply growth (especially in  London) and consumer and corporate uncertainty could create an unfavorable backdrop. We retain a cautious outlook. UK hotels forecast 2017  2 PwC – Facing the future:  A question of balance  A cautious mood as uncertainties and risks abound The UK economy performed reasonably  well in the rst half of 2016, with GDP up by 2.2% (year to the second quarter) compared with 1.6% in the Eurozone and just 1.2% over the same period in the United States. But for the future outlook the key issue is the impact of Brexit. The Bank of England is clearly concerned over the potential short-term slowdown and has cut interest rates to an historic low of 0.25%. UK Prime Minister Theresa May has emphasised that “Brexit means Brexit”, though the timescale is uncertain and our future economic relationship with other European countries is unclear. Planning is underway for negotiations  with other EU countries – probably starting early next year - which could take two years or more to complete. Most forecasters expect the uncertainty about our economic relationship with Europe to affect business investment and consumer condence, and the early indications are consistent with this. But there could also be offsetting benets which help to support the UK hotel industry. Sterling has fallen sharply against other major currencies,  which may bring some short term benets to tourism in London and international destinations like Edinburgh. A weaker pound may also encourage staycations. But uncertainty pre and post the Referendum, as well as an economic slowdown, is likely to impact corporate budgets and travel, a vital segment for hotels. In addition, security concerns following terrorist attacks in Europe have already affected London hotel performance, and together with a glut of new hotel rooms, contributed to a disappointing H1 2016.Looking to the year end, RevPAR in London hotels is expected to fall by around 2.8% this year and a further 0.5% in 2017. In the regions the story has been brighter for most cities and growth continues, albeit at a slower pace than recently. Our forecast is for 3.4% RevPAR growth outside London in 2016 followed by a rise of 2.3% in 2017. On the basis of these forecasts, occupancy levels are projected to reach record highs. Uncertainty post Brexit runs deeper for the hospitality sector than its impact on inbound tourism volumes and spend. The effect on inward migration, particularly from other EU countries, could affect the sector’s ability to recruit and retain skilled staff. There could also be effects from Brexit on deal activity in the hotel industry. Following the decline in the pound, UK assets now look much cheaper internationally which could act as a spur to investment. On the other hand, the uncertainty about both the short-term and longer-term outlook for the UK economy could act to hold back new deals.Brexit is not the only source of uncertainty affecting the hotels industry. Disruption from new technologies is another potential challenge to the existing traditional business model. This forecast report includes up to date PwC research on sharing economy platform Airbnb and how it is likely to affect the outlook for hoteliers. Hospitality and tourism is a key sector for growth, employment and overseas earnings in the UK. It is our 6th largest contributor to export earnings and 4th largest employer – accounting for 4.49 million people or 10% 1  of the workforce and over 180,000 businesses. How the industry responds to current challenges and additional economic uncertainty will be a key barometer of economic prospects in the post-Brexit British economy.  Dr Andrew Sentance Senior Economic Adviser, PwC  Foreword Facing an uncertain future 1 British Hospitality Association   In this issue  Foreword by Dr Andrew Sentance  2 At a glance4Summary: What does the future hold for UK hotels?5 London forecast8 Provinces forecast10 Economic outlook12 A mixed travel outlook14 Facing the future16Supply outlook18  Fea t  ure on Sharing Economy and London snapshot   20  Deal talk23 Appendices27 Contacts and further information29 3 UK hotels forecast 2017   4 PwC – Facing the future:  A question of balance In 2017, PwC’s UK hotels forecast expects continued growth in the regions but London still struggles.  At a glance Occupancy  A glut of new rooms in London  Above average supply growth, especially in London, is expected to act as a drag on trading as weaker demand chases more rooms.  Revenue per available room (RevPAR) +0.5% Despite slower growth, occupancy levels are at the highest on record  -0.8% the lowest occupancy level since 2008 but still high by global standards 77%80%  Provinces London +1.8% Slower growth but still scope for further recovery in real terms +0.4%  ADR sees a slight recovery after a difficult 2016  London Provinces  £70 £142  Average daily rate (ADR) +2.3% 20% ahead of pre-recession peaks in nominal terms  -0.5%  480,770 rooms  Regional rooms  supply 2016* +11,400 rooms  Additional regional rooms supply  2017  145,930 rooms  London rooms  supply 2016 +7,200 rooms  Additional  London rooms supply  2017  +2.4%+5% * Regions excluding LondonCharts show absolute trading and percentage change on previous yearNet rooms supply (after closures) Source: AM:PM ADR and RevPAR growth in nominal terms Forecasts: PwC RevPAR slips a little further Figure 1: PwC’s 2017 UK hotels forecast  £114  London  £54  Provinces
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