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With Omicron Fears Subsiding, UK Hotels Look to Strong 2022

Inflation Might Weigh on Some of the Shine of the Upcoming Year’s Metrics
Hotel News Now
February 2, 2022 | 1:57 P.M.

While the omicron variant of COVID-19 has increased the number of positive cases of the virus, overall hospitalizations are down. In the United Kingdom, this is good news for the hotel industry, which will “likely pick up a head of steam,” according to Cristina Balekjian, CoStar’s senior hospitality analyst, U.K.

In November, hotel revenue per available room inched close to pre-pandemic levels, although RevPAR in December did suffer from initial uncertainty surrounding omicron.

Moving forward, hoteliers have a good set of playing cards in 2022, Balekjian said.

“While the surge in demand has led to occupancies closer to their pre-pandemic performance, rate has exceeded their historical levels, especially during the weekends,” she said. “Robust leisure demand from the staycation market has given hoteliers more leverage with prices as they reached capacity on peak nights."

In 2022, demand will increase, with average daily rate continuing to grow at a faster rate than occupancy, Balekjian said.

U.K. occupancy is expected to remain below 2019 levels until 2024 due to increased supply, Balekjian said.

The Effect of Inflation

“With just over 21,000 rooms in construction and expected to open this year, the U.K. will see the highest levels of supply since its peak in 2012, which coincided with the London Olympics,” she said.

The latest forecast from STR, CoStar’s hotel analytics company, shows ADR and demand will lead the recovery path in 2022 and beyond and be above 2019 levels by 2023, though that doesn't account for inflation.

“Once we’ve stripped out inflation, [ADR is] expected to reach 2019 levels in 2025,” she said.

She added inflationary increases in 2022 are expected to hit hotel firms’ bottom lines as operational costs increase, notably in “food, beverage, labor and energy.”

Another cautionary wind will come from the return of value-added sales tax back to its pre-pandemic level of 20%, a rise the hospitality industry has long fought against.

On the brighter side of things is the likely return and increase of corporate and leisure events throughout the year, Balekjian said. Another event to watch in 2022 will be Queen Elizabeth II’s Platinum Jubilee, which will celebrated in a four-day holiday weekend from June 3-6 that should see healthy ADRs across the country.

For more of Balekjian’s findings, please watch the video above.

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