Is hotel and leisure seeing a post-recession resurgence?

Author: Natalie Gibbs – Hotel & Lesiure Sector Expert (@NG_Glenigan)

The economic downturn hit the construction industry hard and nowhere was it felt more keenly than in the hotel and leisure sector.

While the private housing and commercial sectors saw strong areas of growth towards the latter half of 2013, prospects for hotel and leisure continued to falter. The sector recorded a 3% rise in the underlying value of project starts last year; however this was tempered by an 8% decline in the value of hotel construction, which accounted for more than half of activity in the sector over the last three years.

Several factors have driven the prolonged decline in the value of leisure project starts. Consumer spending has been squeezed by unemployment, high inflation, low earnings growth and, latterly, an economy struggling under the weight of significant fiscal retrenchment. The construction of leisure centres, museums and galleries declined significantly since 2010, as public austerity dried up the source of funding for community and landmark projects.

Looking ahead, however, activity appears to be gaining momentum.

Construction industry analysis from Glenigan points to an improvement in project starts during 2014 and 2015 as investors look to benefit from firmer consumer confidence. 

The first quarter of this year saw moderate but positive growth, before strong levels of new building projects in April pushed starts values higher. Glenigan recorded £888 million of underlying main contract awards in Q1 - the highest total since the third quarter of 2008.

Consumer spending is expected to strengthen further as employment and wage growth gradually improves. The flow of new construction of leisure facilities will be closely tied to the retail sector, with retail developments likely to have a strong focus on accompanying leisure offerings such as restaurants, cafes and cinemas in order to drive their offer as a shopping destination.

In addition there is scope for significant growth within hotel construction. Visit England’s occupancy survey reported a 2 percentage point rise in room occupancy across England last year, from 66% in 2012 to 68% in 2013. The strongest improvement in occupancy rates was reported for cities and large towns, but rises were also felt by seaside, small town and countryside operators. Hotels reported healthy growth in occupancy, but B&Bs and guesthouses saw only slight growth in occupancy.

This market dynamic of increasing demand for city hotels will stimulate strong levels of development due to competition in the branded affordable hotel sector. Premier Inn has stepped up its expansion strategy by announcing plans to build 170 new hotels in the UK by 2018, including a new development in Bristol which is set to break ground next month (Glenigan Project ID: 07170767). New entrants to the market, such as the German-owned hotel chain Motel One and Marriott’s low cost Moxy brand, are also looking to establish a presence.

Boosted by an upturn in tourism, new sources of finance and burgeoning business confidence, the hotel and leisure sector is gearing up for a long-awaited return to growth.

For more information about hotel and leisure construction, contact Natalie Gibbs at Glenigan on 01202 786725.

What are your predictions for the hotel and leisure sector over the next couple of years? Do you think the signs point to strong recovery or are there still challenges ahead? Get in touch with your thoughts via our social media channels.