HOTELS blogger and Spanish-based consultant Ivar Yuste offered his insight on Friday morning about the impact of Thursday’s historic vote in favor of the U.K.’s exit from the EU.
From an investment perspective into the Euro zone: The majority of the non-European investment vehicles that invest in hotels in Europe work out of London. They use the U.K. as a bridge into the Euro zone (so do all major multinationals in all sectors). With the vote, the new risk and negative consequence for the U.K. is that some of these investment groups will no longer find it useful to use the country as its base of operations.
From an investment perspective into the U.K.: With the U.K. deciding to exit the largest common economic market of its region, it logically would be severely penalized at all levels of its own economy. One would expect a slowdown in hotel investment in the U.K. (and in any other commercial real estate vertical market) and an indirect, and faster, slowdown in hotel occupancy as a result of less robust business activity.
The most obvious beneficiary from the first two scenarios should be Ireland, with the effects being exactly the opposite as those described above.
From a tourism perspective into Europe’s largest tourism market: The largest internal flow of tourism in Europe goes essentially from the U.K. into Spain. This is not only hotel tourism but also leisure real estate activity (apartment rental and second residence purchases). A very large community of U.K. senior citizens resides permanently in Spain, relying on the safety net of the Spanish social security system, from which they can benefit from at no cost, as EU members. If this comes to a halt, the leisure real estate market in Spain should suffer significantly.
As conventional tourists staying in hotels, U.K. citizens will also be penalized by the devaluation of the British pound and will not have the same purchasing power as before. It would be logical to expect a decrease in the average spending per U.K. tourist, or lower growth in British tourist arrivals. Fully 8.9 million British tourists arrived in Spain in 2014. In 2015, this figure increased by 4.5%.
Having said all this, bearing in mind the geo-political situation of the Mediterranean countries, Yuste says he doesn’t see which destinations could be cheaper, and equally stable, as Spain for the British visitors to go to as an alternative.
“My impression, at all levels of the economy, is that Brexit will cause irreversible damage to the UK economy,” he said. “We will all lose, but the U.K. will have by far face the most damaging impact in all respects. If there is any common sense left in our politicians, they should find a diplomatic way to reverse or sweeten this decision.”
In the meantime, Yuste added, Ireland is the market to watch.
The hotel industry’s key feeder, airlines, will also be impacted by the Brexit decision. Ben Paul, PwC partner and airline industry leader, put out the following statement:
“The decision to leave the EU has profound implications for our aviation industry, with issues ranging from access to the single aviation market to sector financing and infrastructure investment.
“Leaving the EU has wider implications than just access to the European market. EU-level air services agreements with countries like the U.S., Canada, Brazil, Morocco and several others will need to be renegotiated — and conditions enjoyed currently by airlines may not be easily replicated.
“There is much to accomplish to avoid serious disruptions to the industry, making it vital for the U.K. government and industry to work together to secure a positive outcome for our aviation sector.”