As Britons decide today whether the U.K. should leave the European Union, STR says future growth of the hotel industry could be crimped if voters approve the measure.
STR says that while it’s impossible to quantify the extent of a “Brexit,” it would probably impact current hotel performance in the U.K., where hotels have had the longest 12-month moving average period of RevPAR growth since January 2007, although growth has been slowing recently. Figures for May show that while London’s monthly performance has been positive, year-to-date May RevPAR was down 3.0% to £99.88 (US$146.63), driven by a 2.7% decline in occupancy levels. On the other hand, regional U.K. witnessed an increase in RevPAR of 2.2% to £46.87 (US$68.80).
STR and its forecast partner, Tourism Economics, believe the recent fluctuation of the British pound is an early indicator of the impact Brexit could have on the economy, which would filter down to the hotel industry. Most of the impact is likely to be on travel confidence, especially business travel.
One possible Brexit scenario involves weaker domestic hotel demand, in line with weaker GDP, consumer spend and higher unemployment. Larger falls would be expected in capital investment, including hotel investment, because of the ensuing uncertain business environment of Brexit. That would affect business travel, a large component of the London hotel market.
There is a potential positive impact for the hotel industry, due to increased affordability of the U.K. and London as a destination, derived from a weaker exchange rate. However, some uncertainty is likely to remain, not least from the potential long-run impact of lower investment, which would continue to affect business-travel decisions.
STR prepared the forecast in partnership with Tourism Economics, an Oxford Economics company.