For property investors with an interest in tourist accommodation, 2020 brought something of a shake-up. On the one hand, foreign visitor numbers plummeted as a result of restrictions on international travel. In September, a report from VisitBritain suggested that the country had welcomed 73% fewer overseas visitors than over the same period in 2019 – amounting to an £18 billion hit to the nation’s tourism industry.
However, this was only one part of the story. Those same travel constraints also limited the options for UK-based holidaymakers; a situation that produced a distinct surge in domestic tourism. A new economic pattern emerged, driving demand towards more local providers. The idea of ‘staycations’ entered common usage and, for a period between lockdowns, hotels and holiday lets saw record bookings on the part of British customers.
That summer produced eye-catching headlines and some startling statistics but, in the absence of an effective Covid vaccine, there was always a risk that infection rates would rise again and prompt another lockdown. Of course, that’s exactly what happened and what could have been a remarkable recovery in the visitor economy stalled. Despite a strong summer, overall domestic tourism spending fell by 49% compared to the previous year, equivalent to a loss of £45 billion.
Looking back, most British tourism and hospitality businesses will regard 2020 as a year that, on the whole, they’d choose to forget; an annus horribilis that saw job losses, business failures and empty beds and tables.
Gains and Losses
A domestic industry losing almost half of its usual value inevitably meant lower levels of occupancy for the owners of short-stay rental property. Most will have seen more void periods outside of the periods of peak demand, and therefore lower yields across the year as a whole.
Against that, however, investors also made unexpected but welcome gains on average capital values. The Office for National Statistics found that residential property rose in price by an average of 8.5% over the year to December 2020. For a typical property, now valued by ONS at £252,000, that represents a cash-terms gain of £20,000 for the year.
Nevertheless, for businesses more used to prioritising rental incomes and cashflow, and for owners who had no intentions of selling, this ‘on paper’ capital bonus would have meant relatively little. Faced with another year like 2020, many landlords with short-stay lets would certainly be reconsidering their options.
Covid, Vaccinations and the Future
Happily for investors, the UK is now benefiting from a rapidly developed vaccination programme that should see reduced infection rates and a faster return to something like normality. On February 19th, the government’s Coronavirus Data website noted that the R number (the rate of reinfection) stood at 0.6 to 0.9, indicating that the pandemic was in retreat. Rates varied by region and country – the North East and Yorkshire having the highest rates at the time of writing – but overall, coronavirus infections were continuing to drop.
Importantly, as more and more people have their first and second vaccinations, the R rate and the absolute number of infections can be expected to fall further. The Daily Telegraph reported that, as of 19th February, “The lower end of the UK's coronavirus R estimate is 0.6 - which is the lowest R range seen since the Government first started publishing the figures in May 2020… It means that the number of new infections is shrinking by between three and six per cent every day.”
The paper also quoted Professor Adam Finn, from the University of Bristol and a member of the Joint Committee on Vaccination and Immunisation (JCVI), who said that when it came to vaccination results: "everything's moving in the right direction."
This optimism is reflected in an economic forecast published by Deloitte on 12th February. In it, the company predicts a contraction in the first quarter of the year (Jan to March) “owing to the impact on activity of restrictions needed to contain the new COVID-19 variant.” However it expects this to be followed by a steady recovery. It states: “We expect the downturn in GDP to be smaller than in the first half of 2020... In the second quarter we expect the rollout of the vaccine and warmer weather to allow for a modest easing of restrictions, followed by a strong bounce in the third quarter as vaccine coverage exceeds 50% of the population.”
Economic growth forecast – GDP:
Q1 2021 -4.1%
Q2 2021 +3.9%
Q3 2021 +5.4%
Q4 2021 +1.1%
The timing of those shifts in fortunes could be very significant. Quarter 2 would cover the Easter and early summer period, while Q3 would represent peak season, and Deloitte is pointing to strong growth in both periods. Beyond that, with over half the population expected to be vaccinated, markets - including the tourism sector - can expect a continuing return to more normal trading conditions.
Tourism Market Predictions
With respect to tourism in particular, VisitBritain published a forecast in January that expects to see overseas visitor numbers rising by 21% against last year and an extra £6.6 billion of tourist spending. This would still be well down on 2019 but the trend is very definitely upward. VisitBritain also expects inbound visits from short-haul destinations in Europe to rise more quickly than the global average – by around 34%.
Looking at the domestic tourism market – demand for ‘staycations’ – VisitBritain expects a much faster recovery. It writes that “Our forecast is for a recovery to £61.7bn in domestic tourism spending in 2021; this is up 79% compared to 2020.” It expects domestic overnight tourism to rise by 82% against 2020 figures, and suggests that by the end of the year, the sector will be returning to more familiar patterns, attracting around 84% of the spending seen in 2019. Like Deloitte, it predicts “a slow recovery in early 2021 before a step change in the spring as restrictions ease and confidence returns.”
In a video setting out what it sees as global travel and tourism trends for 2021, Oxford Economics notes:
- “New vaccines will motivate the return to growth in 2021”
- The economic impacts of recession will limit affordability, “especially for long haul travel”
- “Travellers will opt for closer to home destinations (including domestic substitution)”
For investors, those last two points might be particularly salient. They both point to a continuing bias towards staycations and shorter travelling distances. That should translate into improving prospects for those targeting the domestic tourism market, including landlords with short-stay property to let.
Tourist Intentions for 2021
In August 2020, the Cumberland Building Society published its national staycation survey, which found that “almost three-quarters of respondents (71%) are intending to plan a UK holiday in 2021, suggesting that the great British staycation is not just a short-term solution to the coronavirus pandemic, but a long-term option for holidaymakers, and a significant confidence boost for the hospitality sector.”
In October, VisitBritain published a survey that suggested a 33% increase in domestic interest in taking short stay UK breaks, compared to previous (pre-2020) averages. It also indicated a 31% increase in the number of planned ‘longer breaks’ in the UK. At the time, 53% of respondents expected to take fewer overseas trips.
However, this is not to suggest that all UK tourism hotspots will benefit equally. Holidaymakers have become much more aware of the heightened risk of viral transmission in closely confined spaces, and this has important implications for big cities that might previously have attracted millions of visitors every year. Cities typically trade on their indoor attractions: their theatres and museums, galleries, restaurants and nightclubs, but these are precisely the kinds of venue where people tend to be most closely packed together. The same is true of public transport in big cities; subways, tourist buses and railway stations all tend to attract the crowds.
Conscious of the risks, British tourists are shifting their priorities in terms of how they want to spend their time and, apparently, the majority are intending to make their plans around open space.
Returning to the Cumberland Building Society’s August survey, the company’s Head of Commercial Lending Bob Bishopp said that “over half of respondents (57%) cited good views as the most important feature they look for when choosing their staycation accommodation. This was followed by outdoor space/gardens (53%), close to the beach (50%) and somewhere secluded and private (43%)… Our research shows that the great British staycation is fast becoming the holiday of choice for Brits looking for convenience, safety and the great outdoors; thankfully not just this year but into 2021 and beyond.”
Similarly, the activities people expect to enjoy are changing. There has been a pronounced swing in favour of walking, cycling and outdoor pursuits generally, rather than the more usual pattern of seeking out organised, often indoor entertainments. This is likely to be good news for investors with property in less built-up locations, and destinations where the focus is on the outdoors. Coastal properties and those in or close to national parks therefore stand to do well this year.
Trends in Popularity
Outdoor destinations +31%
Outdoor leisure +16%
Indoor health venues -19%
Entertainments & events -22%
Indoor attractions -22%
The type of property most in demand is also changing, and for related reasons. 2021 is looking like it might be a challenging year for the operators of big hotels, where lifts, lobbies and communal dining halls will all raise the risks for the 50% of holidaymakers who are concerned about catching Covid on holiday. In October 2021, PWC wrote that “the forecast is particularly bleak for London, where the overall revenue per available room is forecasted to fall significantly.”
The flipside of the argument is that small, self-contained serviced apartments and self-catering properties are likely to be in even greater demand. AirBnB’s UK office recently reported that “with self-catering accommodation perceived by some as a safer way to vacation, … in the last week of January 2021, searches for summer staycations on its website more than doubled compared to the same time last year.”
Winners are likely to be traditional rural destinations such as the Scottish Highlands, the Lake District, the Yorkshire Dales, parts of Wales, and the South West – amongst others. To illustrate the point, Malcolm Bell, chief executive of Visit Cornwall, said that bookings for summer 2021 are between 50% and 100% higher than their usual levels. He noted that with many regarding their homes as a kind of ‘open prison’, people appeared to be booking much longer UK-based holidays than they would have done prior to the pandemic.
This all seems to be supported by recent research by TripAdvisor. On 21st January, it issued a press release in which it said that “domestic vacations remain high on travellers' wish list for 2021… In the first week of January, nearly 70% of hotel clickers on Tripadvisor were booking future domestic trips, while further out, May through August are still proving the most popular months for domestic vacations.” The company also found that 24% of British travellers are planning to take at least three domestic trips this year.
Towards the end of 2020, a spokesperson for PWC said that: “UK regions should benefit from increased staycation demand in 2021, and coast and country properties offer potential. Meanwhile the fall in corporate demand, coupled with the complete lack of sports and music events will see big city hotels suffer disproportionately.”
On the face of it, investors with short-stay tourist property in big cities could face a lean time this year. For 2021, at least, demand is likely to be subdued in densely populated urban areas, and so there may be an argument for shifting strategy and focusing on more dependable, longer-stay tenants. Rental demand on the part of workers and families is still exceptionally high across the UK, so while the tourism market might dip in larger cities, it is still possible to achieve strong returns by targeting other markets.
In 2021, the biggest winners are likely to be those properties that afford guests a high degree of independence and relative isolation. Crowded breakfast rooms in B&Bs present similar risks to those of a large hotel, so they could still struggle this year, but self-contained holiday homes and furnished apartments should fare much better.
Despite the roll-out of effective vaccines, confidence in overseas travel is still low. The effects of that go both ways. Britain has one of the highest per capita infection rates in the world, so it seems especially unlikely to attract foreign tourism this year. However, prospects for the domestic tourism market are looking good, especially in rural and coastal areas. British travellers remember very clearly how some airlines failed them last year, so outbound travel is still regarded as a gamble, particularly if it comes with the added risk of enforced quarantine on their return.
By contrast, a UK staycation is perceived as far lower risk and therefore a more attractive option. Moreover, with many customers having spent much less than usual in 2020, a report by Deloitte, (UK Travel Weekly Insight Annual Report January 2021), suggests that “a majority of those intending to travel in 2021 will spend at least as much or more on holiday than the last time they travelled.”
For some furnished holiday and short term let property owners, 2021 could see the start of a steady revival, especially in rural and coastal locations. It could also witness rising demand for property types that afford more independence, privacy and seclusion. It will certainly be a mixed picture this year, but as the R rate falls and confidence returns, the longer-term prospects should improve steadily.
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For more information about UK furnished holiday let investment opportunities and property marketing options, please call our advisory team on 01244 343 355