Secondary hotels likely to see more failures

Hugh Anderson, partner in the hospitality and leisure team at Edward Symmons in Manchester, reviews the hotels market in the North West.

New analysis by the Institute for Public Policy Research North suggests that the drivers of economic growth are concentrated in the South, questioning their impact on the North, which falls behind in key drivers for economic growth. This contrast is echoed in the disparity in performance between London hotels, which saw revenue per available room (RevPAR) grow by 11.4% at the end of 2010 compared with growth of just 2.8% in the provinces.

The North West remains a diverse market place, with the hotel sector having hugely disparate markets. The region remains heavily dependent on the public sector as a key demand generator, especially in smaller towns and cities. The widely publicised government focus on cutting travel expenditure will inevitably impact on the hotel sector. Economic recovery remains extremely fragile and the provincial hotel sector's future trading performance remains in the balance.

Whilst the first six months of 2011 saw many North West hotel market segments show signs of improved trading conditions, these have by no means been consistent, making predictions difficult. Hotel demand remains largely location driven, with a strong emphasis on quality, brand and value. Unbranded hotels in more secondary locations, that have failed to invest, have struggled to compete against established recognised brands. Whilst yields have stabilised, values remain adversely affected where hotels have shown continued poor trading and profitability and most insolvency casualties over the next six months are likely to remain within these secondary markets.

The North West has seen limited high profile hotel group failures, but the recent restructuring of debt by MWB with the sale and leaseback of four of its Malmaison Hotels, including Manchester, demonstrates continuing financial pressure. Banks remain prudent, but decisions amongst lenders to increase the number of hotel insolvencies could be hugely detrimental.

With ongoing pressure on corporate demand and low consumer confidence, expectations for growth remain very cautious, the best we can hope for is nominal growth over the next six months of 2011, continuing into 2012. Whilst both Manchester and Liverpool have relatively robust and diverse economies, until there is stability in the wider economy there will be no significant improvements within the North West's hotel sector.

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