STR, the leading provider of benchmarking data and analytics for the global hospitality industry, provides an update on market trends impacting hotel performance around the world. 

 

Oil Prices

Markets that rely heavily on oil production have experienced significant downturns in hotel profitability in recent years. For example, hotel markets in the Gulf Cooperation Council countries (UAE, Oman, Saudi Arabia, Bahrain, Kuwait and Qatar) started seeing significant downturns in mid-2014, when the crude oil price started dropping. While average prices were above $95 per barrel until the end of 2014, 2015 marked a steep oil price drop 48.6% to USD49.50. Consequently, as hotels in this region’s key markets are heavily dependent on corporate business travel, declines were seen across all revenue streams, with room revenue down 3.1%, Food & Beverage revenue down 3.8%) and other operated departmental revenue down 5.8%.

Oil prices fluctuations and its impact on hotel performance

The graph above shows the correlation between the falling oil price and the decline in hotel performance and profitability. Revenue per available room (RevPAR), the main metric for gauging hotel performance, and gross operating profit per available room (GOPPAR), the main metric for gauging hotel profitability, have both trended in line with the crude oil price over the past 10 years.

Outside of the GCC, other hotel markets significantly impacted by oil prices include Aberdeen, Scotland; Baku, Azerbaijan; and Caracas, Venezuela. While every market is different and each has several other factors that can either help or hinder performance growth, it is evident that the outlook for these markets is heavily tied to future oil prices.  

 

Brexit

The most evident impact from the Brexit Referendum result has been the pound sterling devaluation. A weakened currency boosted leisure visits to the U.K., with an influx of visitors in July and August. While this is beneficial for hotels in the short term, leisure business is more price sensitive than corporate travel, and demand will likely decline if rates go up.

On the other hand, the pound devaluation has also made international travel more expensive for UK residents. This has impacted countries in Europe that rely on arrivals from the U.K., including Spain, of which the U.K accounts for 24% of total international arrivals, and Ireland, which depends on the U.K. for 53% of its international arrivals (Tourism Economics).

 

Supply Growth

In Europe, the U.K., Russia and Netherlands have the highest total number of hotel properties in pipeline development. As for projects that are currently under construction, which should enter the market in the near future, Russia is set to add 5% to its existing supply, while the U.K., Netherlands and Turkey will all add 3%. Increases in the number of hotel rooms available in each of these countries should impact performance. In the U.K., for example, a major shift is expected for the balance of supply in demand for cities like Birmingham and Manchester. Meanwhile Turkey, another hotel market that has been impacted from terror attacks, will likely see further performance declines as new supply enters the market.

Outside of Europe, China has the most hotel development in the APAC area, with about 300K rooms coming online over the next five years. Saudi Arabia and the U.A.E. also are expected to show strong increase in supply, particularly as Dubai builds up for Expo 2020. Elsewhere, Brazil leads South America with roughly 38k rooms in the pipeline, while the U.S. has 555k.

 

About STR

STR provides clients from multiple market sectors with premium, global data benchmarking, analytics and marketplace insights. Founded in 1985, STR maintains a presence in 14 countries with a corporate North American headquarters in Hendersonville, Tennessee, and an international headquarters in London, England. For more information, please visit str.com.

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