The hospitality industry experienced many highs and lows across 2022 and as a sector, faced challenges including recovery from the pandemic, the impact of Russia’s invasion on Ukraine and the ongoing cost-of-living and energy crisis, the instability of government on the economy and rising interest rates. The sector has tried to remain resilient, in the knowledge some of these obstacles are continuing this year and will shape the outlook of the market as we progress further into 2023.

With the new year well underway, AGO cofounder, Lionel Benjamin, looks at economic challenges, the staycation trend, and shares an outlook for hotel investment over the coming months.

Economic challenges

Last year, the hospitality sector suffered from rising bills and labour costs mostly as a result of soaring inflation and the increase in interest rates. The impact was felt throughout the hospitality and leisure sector as it was for virtually the whole of UK PLC, energy companies being a notable exception. For some hoteliers, they ended 2022 not knowing if they could keep the lights on and the doors open. The new Hospitality Market Monitor showed over 1,000 hospitality businesses closed in the fourth quarter of 2022 and for those that remained open after double-digit inflation, sales may have been ahead though profits were significantly below December 2019.

As we progress through 2023, we must look at ways to mitigate the rising costs. AGO appointed a broker who is buying utilities for a multitude of businesses which has achieved driving bulk discount pricing. In tandem, we are and have implemented consumption reduction measures such as lowering boiler temperatures and installing infrared sensors, which have assisted us to control unnecessary consumption. Most importantly supporting an awareness programme with our team to support us manage down consumption and minimise waste.

In terms of staff shortages, figures show that 200,000 international workers have left the industry since 2019. For success in 2023, hoteliers should focus on pragmatic measures to retain staff, such as offering training and development programmes, flexible scheduling, competitive scales of pay in light of the national minimum wage increases and investment in employees. It is vital for team members to feel valued and supported, as without them the business cannot thrive.

Are staycations here to stay?

Consumers, hit by the cost-of-living crisis will continue to watch their spending this year and therefore, the staycation trend which swept the industry in 2022, is hopefully here to stay. The evidence supports this with audit, tax and consulting firm, RSM UK, finding over a third of respondents are planning to take a short break of one to four days in the UK over the next 12 months. At AGO Hotels, we are committed to focusing on portfolio growth in key regional hubs. This year so far, we have proudly opened the doors of our first central London hotel, The Rove. Based off Norfolk Square in Paddington, the latest addition is the 15th hotel in the AGO’s portfolio and is located in a prime area of London, ideal for tourists, as well as those visiting for work.

Standing out from the competition and providing the best customer experience will be vital if hoteliers want to be able to monetise this opportunity in 2023. From the moment the guest books, to the time they check out, in a competitive market, guests will be looking for a reason to stay loyal to a brand. In times when businesses and employees are stretched, it will be key to remember everything comes back to the guest experience.

2023 investment outlook

For the wider investment space, 2023 leaves question marks. Although transactions appeared to slow last year – total annual investment volume was around 30% below the five-year average – there was an uptick in activity towards the end of 2022. Knight Frank’s, recent UK Hotel Trading Performance indicated that investors are showing renewed signs of confidence, with a predicted 18,500 new rooms forecasted to be opened within the UK hotel space in the next three years, as investors continue to see the potential the industry presents.

Interest rates are now causing uncertainty on acquisitions as funding becomes tighter, and where it is available debt is, and will continue to cost significantly more than over the last five years. This creates other opportunities for the cash investor and potentially for alternative structures, where an element of lease guarantees provides a minimum return level, - it comes to AGO Hotels hybrid profit lease.

At AGO, we believe the hotel sector has so much to offer as a major component of the UK economy and whilst there are tough times ahead, we are confident we can weather the storm.