www.pwc.co.uk/hospitality-leisure

UK hotels forecast 2018As good as it gets?

PwC

AgendaScene setting

➢ Global and UK economic outlook

➢ Travel trends

➢ Recent hotel trading

Latest PwC hotels forecast

2

September 2017As good as it gets

Global and UK economic outlook

PwC

Global growth picking up in 2017 and 2018% per annum change in world real GDP and consumer prices

Source: IMF World Economic Outlook Update, July 2017

-1

0

1

2

3

4

5

6

7

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

GDP growth Inflation 1980-2010 GDP growth trend

PwC

Outlook for global economy in 2017

PwC August 2017 Global Economy Watch

Russia

Germany

UK

US

Brazil

India

Spain

Key

Canada

Mexico

South Africa

Australia

Japan

Italy

Greece

Ireland

France

2.0

2.1

1.7

0.4

1.6

3.8

1.5

1.8

1.3

0.8

7.3

1.2

2.7

6.6

1.2

1.3

x.x = GDP growth in 2017

China

3.0

PwC

The UK has slipped into the economic slow laneEconomic scenarios for UK post-Brexit

Sources: ONS and PwC projections, updated for most recent data

95

100

105

110

115

120

125

130

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pre-Brexit Central scenario (FTA) Downside (WTO) Current forecast

Estimated impact on GDP by 2020 vs Remain

scenario = -3-5.5%; Current projection = -2.5%

PwC

UK business investment fell last year% p.a. change in UK business investment in real terms*

Source: Office for National Statistics *total fixed capital spending pre-1997

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%Investment 1970-2016 average

PwC

UK inflation has picked up sharply% annual change in consumer prices index (CPI)

Source: Office for National Statistics

-1

0

1

2

3

4

5

6

2005JAN

2006JAN

2007JAN

2008JAN

2009JAN

2010JAN

2011JAN

2012JAN

2013JAN

2014JAN

2015JAN

2016JAN

2017JAN

CPI inflation 2005-13 average 2014-16 average

… as a weak pound has squeezed consumersUK effective exchange rate, Jan 2005=100

Source: Bank of England

70

80

90

100

110

120

130

EER 1990-2008 Ave Ave since 2009

PwC

The global economy in 2018

PwC August 2017 Global Economy Watch

Russia

Germany

UK

US

Brazil

India

Spain

Key

Canada

Mexico

South Africa

Australia

Japan

Italy

Greece

Ireland

France

2.1

2.2

2.0

1.2

1.6

3.3

1.4

1.7

1.0

1.0

7.5

2.0

2.8

6.2

0.7

1.4

x.x = GDP growth in 2018

China

2.3

PwC

UK faces slower growth as consumers are squeezed% per annum change in GDP and consumer spending

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

GDP Consumer spending

Source: ONS and PwC forecasts

PwC

Implications for the hotel industry

➢UK economic growth is weakening, driven by higher inflation, consumer squeeze and investment uncertainty

➢But global economy remains resilient – with continental Europe picking up strongly

➢Healthy global growth and a competitive pound has boosted UK inbound leisure tourism

➢Business travel to UK less buoyant – may reflect impact of

Brexit uncertainty

➢Looking ahead to 2018, exchange rate boost to travel

growth likely to fade and Brexit uncertainty and consumer slowdown will have a bigger impact

➢Global economy likely to remain robust in 2018, which

should support modest growth in hotels industry

Travel outlook

PwC

Inbound travel at record levels

But, divergence between segments

As good as it gets?

• Bonanza for inbound holidays+ 20%

• Inbound business - 3%

• Groups .. and more groups

• Conferences and meetings

• Terror threat

• High hopes for staycations

Demand and supply trends

PwC

Strong London hotel trading in 2017Heating up or cooling down?

As good as it gets?

(15)

(10)

(5)

-

5

10

15

Occupancy ADR

RevPAR

Source: PwC STR

% c

hang

e y

-o-y

PwC

Positive regional hotel trading in 2017Steady as she goes

As good as it gets?

(2)

-

2

4

6

8

10

Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

% c

ha

ng

e y

-o-y

Occupancy ADR RevPAR

PwC

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2011 2012 2013 2014 2015 2016 2017F 2018F

London Regions

Supply snapshot The heat is on, especially in London

S ource: AMPM August 2017

Average supply growth 2011-2016

LondonProvinces

Latest PwC hotel forecasts

PwC

Key 2018 forecast assumptions

• Positive global and EU economic growth

• Deceleration in UK GDP growth

• Positive travel outlook but stimulus of weak pound diminishes

• Leisure travel benefits most

• Brexit uncertainty impacts business travel and domestic consumer spend

• Supply spike impact, especially London

• Security concerns may dampen bookings

Slide 20

London forecast 2017 and 2018

Still a reasonably strong outlook

Facing the future September 2016

Source: PwC

Provinces forecast 2017 and 2018

Further growth ahead

As good as it gets? September 2017

Source: PwC

As good as it gets?

…A broadly positive growth outlook but we don’t expect the

growth in 2018, to match 2017…

but a more uncertain trading

backdrop

• Sterling related price inflation

• Labour exodus

• Rise in NLW; higher rents and business rates

Thank you

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