IN THIS UPDATE:

• STR European insights

• International Overseas Demand – What’s the data from the aviation industry telling us?

• Spotlight: European Serviced Apartment Market

• An insight from Asia

As you’re aware the situation remains highly fluid with downside risk, particularly as the big unknown in terms of how long the situation will last remains. Therefore any views expressed below are only valid for a short amount of time.

STR EUROPEAN INSIGHTS

• Europe’s recovery has commenced as a result of government restrictions easing in some countries and hotels starting to reopen. For the week ending 14 June, actual reported occupancy for open hotels increased to 21%, up from 16% for the week ending 31 May, with occupancy including those hotels temporarily closed being at 9% (up from 5% for the week ending 31 May). For the week ending 14 June, UK occupancy was ahead of most other European countries for open hotels at 24%. However when including hotels which are temporarily closed, UK occupancy was only at 5%, with multiple European countries outperforming the UK as a result of their eased government restrictions.

• Recovery for European hotels is anticipated to show further increases from the beginning of July due to most European countries easing government restrictions. Recovery is expected to be led by regional/leisure destinations, with large cities lagging and dragging down the recovery. This can be seen as at 13 June, with the top five markets for actual occupancy being Italy NW, Baltic Coast, Tricity, Occitanie and Germany East. The bottom five markets are Lisbon, Northern Portugal, Paris, Brussels and Amsterdam.

• As at 15 June, most European capitals were not showing any business on the books above 20%, with this expected to improve over the coming weeks as government restrictions ease.

• Although there has been evidence of recovery in some markets around the world, for example China, with occupancy increasing to mid-40% in the middle of May and then peaking at 52% for the week ending 14 June, such markets have also showed signs of plateauing, with hotels looking for differing sources of income in order to remain competitive. As a result of these changes in mix, we are likely to see downward pressure on ADR for hotels to capture such demand.

• STR are currently forecasting the Covid-19 downturn will be more severe and take longer to recover than the global financial crisis, however, as we have seen, individual market conditions are changing rapidly and there is evident political will to reopen and reinvigorate economies which could lead to a faster recovery. In the short term (6–12 months), demand is forecast to be 60% to 80% of 2019 levels due to travel restrictions, social distancing measures and weak consumer confidence. Demand recovery is expected to be slower in the medium term (1–2 years) due to the impact of the economic downturn and slower international recovery as a result of changes to airline capacities. In the long term, it is forecast that demand in most markets will reach 2019 levels by 2023. However due to supply growth, occupancy levels are forecast to be on aggregate at 95% of 2019 levels. Recovery will be hampered however as a direct result of an extended period of downward pressure on ADR and due to supply growth.

INTERNATIONAL OVERSEAS DEMAND

What’s the data from the aviation industry telling us?

• Since the Spanish Prime Minister Pedro Sanchez made the statement. “The moment has arrived. I’m announcing to you that there will be a tourist season [in Spain] this year” the UK government has implemented a mandatory quarantine for those returning from overseas. Whether this will have the desired effect of reducing the spread of Covid-19 is not for us to comment upon, however, it has created further headwinds for all industries both in the UK and further afield with a reliance on international visitors as a source of revenue.

• One such sector facing particular challenges is the aviation industry. You will have no doubt seen the numerous headlines relating to various state funding measures offered to airlines to prop up balance sheets and reduce the number of redundancies during this challenging period. Such government-led intervention has resulted in the publication of significant amounts of data on the future of international travel. While continuing to change on an almost daily basis, we summarise some of these findings below and suggest how they may impact the UK hotel sector.

• With exceptional air connectivity, the UK has experienced strong levels of international visitor arrivals over the last five years, reaching 41.08 million visitors in 2017, dropping marginally to 40.86m in 2019. In 2019 79% of inbound visitors reached the UK by air but accounted for 88% share of visitor spend. With a higher spend per visit than other forms of travel, a resurgence of international visitors arriving by air will be paramount to markets with a high reliance on international guests. We summarise the top 10 UK markets by international visitor numbers below alongside their respective key source markets.

• The International Air Transport Association (IATA) estimates that 2020 international air travel will fall by 60%, with domestic and short-haul air travel faring better with a decline of 40%. IATA has recently published updated five-year forecasts for global air travel, estimating that the rebound is likely to lag behind GDP improvements as a result of a continued suppression of consumer confidence for international travel.

• This delayed improvement in air passenger travel is echoed by the UK’s second largest airline – British Airways owner IAG – which handled 44.56 million passengers in 2019. Current forecasts by management suggests that even by 2023 passenger revenue is going to be c.7.5% behind the 2019 performance. This however is in contrast to the UK’s largest airline, Easyjet, which is forecasting a bounce back to 2019 levels by 2022.

• The stark contrast between the two companies’ four-year forecasts is likely to be as a result of the differing recovery profiles for leisure travel compared with corporate use, as well as point-to-point flights versus long-haul flights with transfers through central hubs.

• Consumer confidence for short-haul travel is also likely to play a key role in the improved performance of Easyjet, boding well for UK regional markets which have a high reliance on EU international demand. In fact, as can be seen across the top 10 UK markets for international tourist visits, nearly all have significant visitor numbers from across the EU. This movement of international visitors is likely to be aided by the introduction of ‘air bridges’ details of which are expected to be announced at the end of June.

• Similar sentiment can also be seen across other European low cost carriers. Norwegian had suspended all flights until 2021, but announced on the 18th of June that from 1st July it intends to operate flights to Oslo and Copenhagen from both London Gatwick and Edinburgh. Hopefully providing a boost to Gatwick hotels.

• IATA forecast immediate business travel and VFR (Visiting Friends and Relatives) to aid short-term pick up. With VFR travellers traditionally opting to stay with those they visit, there is likely to be a shift towards booking nearby accommodation, presenting opportunities for local hoteliers.

• With international business travel driven by corporate confidence, wider global economic recovery is going to play a vital role in increasing international business visitors to the UK. Unlike previous recessions, we’ve seen a greater take up of technological change than at any other point in history. For those that have historically resisted the move to video conferencing, platforms like Zoom and Microsoft Teams have become the new norm. This change in attitude is likely to result in further reductions in demand for international corporate travel in the short to medium term. A recent survey by the Global Business Travel Association echoes this sentiment with only 10% of UK businesses expecting to resume international travel immediately and 29% of companies not expecting to resume international travel in the near future.

• Leisure travel however may be slightly more resilient to economic uncertainty with consumers choosing to holiday but downgrading spending habits. The most recent IATA survey outlined that 60% of leisure travellers would be willing to book a holiday one month after lockdown ends, contrasting somewhat with corporate sentiment.

• Short-haul international leisure demand is likely to rebound quicker than long haul. US leisure visitors have historically generated significant amounts of spend (£4.1 billion in 2019) across the UK regions but will be slower to improve. Hotels will no doubt seek to replace this business with frustrated domestic demand as discussed in our previous publication.

SPOTLIGHT: EUROPEAN SERVICED APARTMENT MARKET

• Findings from our latest European Serviced Apartment report suggest that while all parts of the wider accommodation market have been adversely impacted by the Covid-19 crisis, the serviced apartment and aparthotel sector has shown a greater degree of resilience.

• This relative outperformance has been supported by the core guest profile, largely being corporates on longer-length stays, as well as the typical configuration of serviced apartment properties. The greater ability to socially distance in serviced apartments is helped by self-contained units with self-catering facilities, reduced social spaces and minimal contact with staff. This has allowed for more properties to remain open during lockdown and will continue to support demand once recovery starts to emerge.

• Serviced apartments and aparthotels are still relatively underrepresented across key European markets, forming just a small portion of total hotel stock, which points towards further development opportunities.

• Despite a lack of stock still preventing large-scale investment volumes, serviced apartments remain attractive with continued investor interest. The relative resilience of serviced apartments during this period is shining a light on the sector, which could result in further interest from new buyers, supporting pricing in the longer term.

• To find out more, please follow the link to the full report: Spotlight: European Serviced Apartment Market

AN INSIGHT FROM ASIA

The Savills Hotels team benefits from a global network of hotel specialists providing local data and touch points across the world. With some early green shoots being seen across Asian markets, we hear from Stella Grant, a Senior Manager in the Savills Asia Pacific Hotels team, as to the varying situations throughout Asia’s most prominent markets.

APAC Hotel Performance

• As the virus began to spread across the APAC region in January, different strategies were implemented to contain its transmission, with some nations experiencing signs of improvements ahead of others. All hotel markets suffered and in April, the APAC region reported a 79% decline in RevPAR YoY, reflecting a 61% YoY decline in occupancy and a 47% YoY decline in ADR.

• As the first and only market to have come out of lockdown in late March, China is starting to see a glimpse of recovery, having progressed from showing an 83% YoY decline in RevPAR in February, to 79% YoY decline in March, 71% YoY decline in April and 57% YoY decline in May. However, signs of a second wave need to be monitored closely.

• May figures across the APAC region shown an improvement, predominantly driven by the recovery in domestic leisure demand, and when compared to the April 2020 figures, reported a 28% increase in Occupancy, 1% increase in ADR, and 29% increase in RevPAR.

• While a number of countries in Europe have announced dates for border reopenings, many countries in APAC expressed that the earliest border reopening will not take place until Q4 2020. However, ‘travel bubble’ (similar to the European air bridge concept) discussions are underway among the countries with low or sharply declining infection rates.

Vietnam – leading the recovery

• Vietnam was quick to react to the Covid-19 outbreak, enforcing an early lockdown and implementing an effective tracking system, with the virus appearing to have been successfully contained. Zero community cases have been reported for nearly two months now. Domestic flights resumed in April and the tourism industry is starting to see signs of recovery, with 75% of Vietnamese hotels now reopened. The ongoing promotion campaigns and discounts offered by both hotels and airlines have helped, with many hotels reporting an increase in domestic traveller demand.

• Recording a 12.6% CAGR (Compound Annual Growth Rate) in the number of outbound tourists between 2012–2018, reaching 8.6 million in 2018, the market anticipates a proportion of this demand to be redirected locally until international flights reopen. Most likely to benefit from this will be the 4 to 5-star hotels, attracting guests with higher spending capabilities.

• From 1 July, Vietnam is looking to reopen international flight routes to a select number of destinations that currently includes Tokyo, Seoul, mainland China's Guangzhou City, Taiwan and Laos.

Singapore – slowly reopening

• Having suffered from a significant spike in infection cases, Singapore has been one of the slowest countries to come out of lockdown. With Phase 2 commencing on 19 June, hotels and restaurants are only just now starting to reopen.

• On 8 June, Singapore announced the plan to gradually reopen its borders, firstly by only allowing essential business travel to six selected provinces in China (Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu and Zhejiang). Singapore is also working to resume essential cross-border travel with South Korea, Australia, Canada and New Zealand.

Thailand – preparing for domestic demand

• As Thailand entered the third phase of its lockdown in June, the Tourism Authority of Thailand (TAT) announced that the reopening of its borders will not take place until Q4 2020.

• To help facilitate domestic travel, the Ministry of Tourism and Sports launched the Amazing Thailand Safety and Health Administration (SHA) certification, which will be issued to qualified establishments with the aim of better ensuring the safety of hotel guests. Tourist attractions across Thailand are slowly starting to reopen with beaches in Hua Hin, Rayong, Phuket and Chonburi (Bang Saen) now open.

• In 2019, domestic travel accounted for 75% of all trips made throughout Thailand, with Thai travellers contributing THB1.08 trillion (approx. US$35 billion) in tourism revenue, recording a 15.1% CAGR between 2009–2019. Provided social distancing rules are observed, the strong base in local and expat traveller demand should see Thai tourism begin to recover.

Australia – pending ‘travel bubble’

• Between 2018 and 2019, Australia’s domestic travel experienced a double-digit growth in domestic spend, exceeding $100 billion for the first time in 2019. Following Australia’s government announcement on 8 May, intrastate travel has now been permitted, with travel across different states due to reopen gradually.

• Australia and New Zealand are in conversations regarding a possible ‘travel bubble’, free from the implementation of quarantine measures. However, with the current travel restrictions in place, international tourism is expected to take some time to recover. Consequently, markets with strong domestic drivers and good accessibility will be best placed to manage short-term operational difficulties caused by the Covid-19 pandemic.