Government data and news headlines suggest a very stark staffing crisis is hitting the hospitality sector. Office for National Statistics (ONS) figures show that job vacancies in the accommodation and food services sector reached 134,000 for the June–August 2021 period. This is the highest level on record and was 41.1% up on pre-Covid equivalent levels. In ratio terms, this means that accommodation and food services has the highest number of vacancies per 100 employee jobs of any UK sector, standing at 5.9% – up from 4.1% over the same period in 2019.

But this staffing issue is nothing new and was already apparent pre-Brexit. Rather, Covid lockdowns have exacerbated and accelerated these challenges and trends. What is needed now is to look beyond the headlines and better understand the nuances of these staff shortages and what it could mean operationally, its impact on costs, and, in turn, margins, and what the solutions could be. In order to address this, Savills carried out an operator survey, encompassing operators with a combined UK room/unit inventory of c.50,000.

The headline results from the survey reinforced the message that the sector will continue to struggle to fill vacancies, with 83% of respondents stating that they expect to experience a shortage of staff over the next 12–18 months. In addition, close to a third (30%) have found the staffing issues so acute they have had to reduce service levels to cope. This is borne out anecdotally by operators, with some closing for parts of the week and/or closing rooms to guests due to lack of staff.

However, staff availability issues are not universal across the board. One operator we spoke to said they have had lots of applicants, the issue is rather a lack of suitable applicants, particularly for those departments where staff vacancies are higher, such as housekeeping. This was apparent in the survey responses. When asked which departments are seeing the most pronounced levels of wage inflation, housekeeping ranked top, with 79% of operators rating the impact as either four or five out of five – this was followed by food & beverage (F&B). Management and administration roles ranked bottom in terms of wage inflation.

If operators are seeing, and expect to see, wage inflation, what will the uplift be? ONS data suggests that average weekly wages in the accommodation and food services sector were already up 7.9% year on year in July (the latest available data point when writing), following a 15% increase in June. This represents a significant acceleration in average wage growth compared to that seen pre-Covid, with July 2019 reporting year-on-year growth of just 2.8%. Survey responses from operators suggest wages across their business are up by an average of 12% compared to 2019, although this ranged from 0% to 25%. While staff availability pressures were cited as a key driver of this growth, 61% of operators stated the uplift was being driven by a combination of this alongside increases determined by the National Living Wage.

The reasons behind these staff shortages, and subsequent uplifts in wages, are already well-documented. Brexit has been cited as a key factor, and in terms of housekeeping and F&B functions, which have historically relied on European labour, it has definitely played a part. Temporary hotel closures due to various lockdowns exacerbated the Brexit issue with some European employees returning to home markets, with some yet to return. According to the ONS, an estimated one million non-UK-born residents left during 2020, albeit some lower estimates put the number closer to 250,000.

It is not just people leaving the country that has been a problem, it is also people leaving the hospitality industry. Lockdown opened up job opportunities in other sectors, such as logistics, as retail spend moved online, and for some of these alternatives, pay, hours, and job security have been more attractive.

Staycation demand over the summer further exacerbated labour shortages, although for some hotels, particularly for those in regional cities, this is expected to subside as demand wanes and student labour returns after the summer break.

While for some operators staffing challenges may diminish over the coming months, over the medium term, fundamental availability issues will remain and are likely to worsen once demand returns to pre-Covid levels. In response to this, we asked respondents what they believed could help mitigate labour shortages.

Relaxing cross-border restrictions was cited as having the most considerable benefit in improving staff availability, with 72% of respondents scoring it either four or five out of five, with the likely benefit to be the most pronounced for housekeeping and F&B functions. Delivering this requires government support, and UKHospitality is already lobbying on related initiatives. However, the likelihood of this being delivered, and the potential timescales, remain unknown. In the interim, initiatives the industry and operators can deliver themselves become more important. For example, better marketing of hospitality careers featured highly, with 53% of respondents rating this as either four or five in terms of benefit. This reinforces the image problem the industry has and why initiatives supporting better in-house training and greater job flexibility was also rated highly by respondents. It is also worth noting that wage inflation could in fact be a good thing for the industry in terms of attracting and retaining people, as part of the image problem stemmed from a perception of low wages and long hours.

In-depth conversations with operators around these issues highlighted the innovative approaches some are taking to tackle labour shortages. Apprentice programs, better new starter training and onboarding procedures, assisting housekeeping outsource partners in their recruitment drives and training, demonstrates the agility of some operators in tackling the issue in order to maintain service levels over the short term and beyond.

What does this mean for investors and lenders into the hotel space?

The upward pressure on wages, alongside increases in other costs such as food and energy, was already compressing operational margins prior to the pandemic, and this looks set to continue. Albeit, an acceleration in payroll costs is more of a concern as it tends to be the single biggest P&L cost for some operators, typically ranging from 25% to 35% of total costs. For lenders and investors, this acceleration raises questions around profitability and the ability to service debt and rent obligations (where applicable). It also has a bearing on the ability of operators to maintain their properties, in turn, feeding into operational performance, which can then have an impact on their potential ability to deliver enhanced returns.

The difference now, however, is that for some operators, the closures brought about by the various lockdowns have allowed them to implement new procedures and initiatives, effectively accelerating improvements that help mitigate margin pressures. For example, greater job flexibility, which allows employees to work across a range of roles as and when the demand arises, has allowed operators to maximise their workforce and, in turn, reduce headcount. At the same time, this flexibility has proved popular with some employees, helping to boost retention and attract new talent.

While the staff shortage ‘crisis’ is considered an industry-wide issue, its level of impact does vary considerably across different segments. Full-service four-star hotels are perhaps the most exposed due to their higher staff headcount, particularly in light of their F&B offer. But again, the impact on margins will vary across different locations and operators, with the stronger operators better placed to implement initiatives to mitigate potential staff availability challenges. The budget and serviced apartment sectors are likely to prove more insulated, with both tending to have lower headcounts, with the latter also having reduced frequency of room servicing in line with the longer-stay profile of their guests. This relative insulation was evident from survey responses, with only 17% of serviced apartment operator respondents rating staff availability as so severe they were having to reduce service levels to cope, versus 47% of hotel operators.

As previously highlighted, the issues tied to staff shortages are going to remain for some time. For lenders and investors, this means a strong understanding of an operator’s businesses, and confidence in their management is paramount. However, while staff availability in isolation is a challenge, it forms just one part of a wider ongoing evolution of the industry, which includes the integration of new technology, the rise of ESG, the growing importance of brands, the role of OTAs (online travel agents), and their guest reviews, to name but a few. As seen before, hoteliers have typically been good at pivoting and adapting to these changes – and this time should not be any different.

Methodology: Results and analysis derived from a survey of 40 operators with a combined UK room/unit inventory of c.50,000. The survey was carried out between 25th August – 10th September.