Despite investment by budget hoteliers, the sector has been hit by consumer confidence and falls in tourism
According to analysis by Glenigan, conditions are expected to remain tough for the sector in 2009, but looking ahead there are some bright spots. For instance, several football teams have signalled intentions to construct new stadia, plans are advancing for the 2014 Commonwealth Games in Glasgow, while Olympic related projects will continue to contribute to sector activity. Nevertheless, during 2008 the value of underlying planning approvals was 22 per cent lower than the previous year and we expect the fall in approvals to impact upon the value of underlying construction starts during the first half of 2009.
The flow of small scale refurbishment and fit-out work is also being squeezed as the major chains have cut back their expansion and refurbishment expenditure. Glenigan data indicates, for example, that during the first eight months of 2008 both Starbucks and Wetherspoon secured planning approval for only half the number of the projects they obtained approval for during the same period of 2007.
In addition to more cautious UK consumers, hoteliers are contending with the impact of falling domestic and international demand. For instance, the number of overseas visitors to the UK during the fourth quarter of 2008 was 12 per cent down on a year ago. Unsurprisingly, after a strong rise in the value of hotel project starts during 2006 and 2007, last year saw a sharp fall in new projects. While the budget end of the market remains relatively strong, the overall value of new hotel projects starting on site 2008 was 27 per cent down on the previous year.
Recent consolidation in the private health club market is set to continue, with companies under renewed pressure as hard-pressed consumers cancel little-used gym memberships. While public sector investment in new and renewed leisure centre facilities has helped support industry activity, 2008 saw an overall drop in the value of project starts.
Taking the hotel and leisure sector as a whole, the value of underlying starts fell 18 per cent during 2008. However, major projects, including preparations for the London Olympics, helped counter the underlying decline. For instance, work started on site last July on the £303 million Aquatics Centre.
After the weak start to 2009, we expect construction starts for the sector to stabilise during the year as investment by the budget chains Premier Inn and Travelodge offsets weakness elsewhere in the sector. In addition, preparations for the London Olympics will continue to support an otherwise weakening sector over the coming months with, for instance, work underway on the Velodrome.
Several large projects should also help boost construction starts in coming months. For instance, subject to Secretary of State approval, work is scheduled to start on site on Everton Football Club’s new £400 million stadium later this year. However, large projects are unlikely to sustain construction activity in the sector over the medium term.