In 2020, the Covid-19 pandemic wrought havoc on tourist industries worldwide. In September 2020, a paper produced for the House of Commons quoted an estimate by the Organisation for Economic Co-operation and Development (OECD) saying that “the potential shock could range between a 60% and 80% decline in the international tourism economy.”
VisitBritain noted that in the early part of the year, restrictions on movement prompted an almost total shutdown of the international travel industry. Moreover, even when services resumed, passengers quickly lost confidence in the reliability of flights and access to resorts. The government attempted to support the industry with the announcement of safe ‘air bridges’ to destinations such as Spain, France and Italy, but many of these were terminated at short notice, throwing tourists and airlines into disarray.
Some airlines responded well, offering full no-quibble refunds in an effort to safeguard consumer confidence. However, others did not, and attracted considerable criticism for what was regarded as a cavalier attitude towards public safety and/or a refusal to issue refunds on flights affected by travel bans.
One result of all this was a sharp decline in inbound international tourism. Data published by VisitBritain in its September forecast found that the number of UK visits from overseas had declined by 73% compared to 2019. This was accompanied by a 79% fall in spending from overseas tourists. This amounted to approximately £18 billion of lost income for the UK hospitality industry.
October 2020 figures from Statista broadly agree. They suggest that “the number of tourist visits made to the UK from overseas could drop by 74 percent, down to 10.6 million in 2020. This is from a peak of 40.9 million overseas visits in 2019.”
To some extent, the travel ban cut both ways. Inbound visits fell dramatically, of course, but so too did the volume of outbound travellers. Either by choice or necessity, millions of British holidaymakers stayed at home to consider whether or not to take a domestic vacation.
During the spring and summer of 2020, the weather remained unusually good. This unique combination of sun, flight restrictions and pent-up demand led to a bumper summer for many domestic tourism businesses. Occupancy rates went sky high, accommodation prices rose and, for a time, it looked like the boost in earnings would go some way to make up for losses over a calamitous Easter.
On 25th June, the Evening Standard reported that “one staycation was booked every 11 seconds.” The figure came from the holiday lodge company Hoseasons, whose sister company Cottages.com “reported a 455% increase on year-on-year bookings.”
The same article also quoted AirBnB, which said that in just three days in June, “it had recorded more domestic bookings … than in the entire month of April.”
Anyone who tried to make a late booking in a UK tourist resort over the summer will recall that vacancies were indeed very scarce, and that prices rose sharply. Owners of holiday rental properties certainly did well for a while. However, in the absence of a Covid-19 vaccine, demand was always destined to decline as the country headed towards autumn and a possible return to lockdown.
Now, as we approach the end of 2020, VisitBritain records that domestic travel restrictions in the first half of the year and a general drop in consumer confidence led to a “49% fall in domestic tourism spending, compared with 2019. This represents a loss of around £45 billion; £12 billion from overnight tourism and £33 billion from day trips.”
In short, despite a profitable peak season, even domestic tourism has been roughly half of what it should have been over the whole of the year.
Changing Travel Priorities
Overall, spending and occupancy has been well down on the usual annual averages, but that was always to be expected of a year in which Covid-19 became a global phenomenon. It’s also worth pointing out that this fall in spending was not spread uniformly across the UK. Heightened public awareness about social distancing and the closures of many indoor attractions have led millions of Britons to change their holiday priorities.
Most notably, these changes have fuelled a pronounced shift towards more rural destinations. At a time when crowds have been something to avoid, big cities such as London have seen some of the biggest falls in visitor numbers. By contrast, coastal resorts and more remote rural properties have enjoyed much more robust demand. The trend is clear: in 2020, holidaymakers have sought out open spaces – countryside, beaches and coastal pathways where they can enjoy active, open air pursuits.
In August, Travel Daily News reported that the Cornish coastal town of St. Ives was “the number one choice for a UK staycation in 2020.” Others in the top five included Wales, the Norfolk Broads, Lancaster and Newquay.
In the same month, the Cumberland Building Society published the results of its national staycation survey, which revealed that “the majority of British holidaymakers (83%) would prefer to holiday here in the UK rather than travel abroad this year.” That statement related to 2020 but, significantly, the company finds evidence that the pattern will be similar in 2021.
It writes: “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.”
Where once the most important items on a typical tourist’s checklist might have been access to museums, theme parks, good restaurants and shopping, the emphasis has changed in favour of space and the outdoors.
The Cumberland’s Head of Commercial Lending Bob Bishopp notes that “when looking at what holiday-makers are choosing in terms of features and amenities, 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.”
Prospects for 2021
At the time of writing, there is no immediate expectation of an effective Covid-19 vaccine, and as we enter a new period of lockdown, consumer confidence is low. According to an October 2020 survey by VisitBritain, 66% of people think that the worst of the pandemic is yet to come, so the outlook for international tour operators and airlines is certainly not good.
However, there is a silver lining for the staycation market. According to the same research, the anticipated number of UK short breaks is up by 33%, and the number of longer UK breaks people intend to take is up by 31%. Those figures compare to the usual UK annual average rather than a 2020 baseline, so this would represent a major boost to domestic hospitality businesses.
Importantly, the research suggests that the most likely focus of people’s interests next year will, once again, be on outdoor pursuits rather than indoor attractions. What’s more, it’s predicted to be a relatively long-term trend. VisitBritain finds that few people expect the country to return to normality before March 2021. Only 20% believe that the country will be close to ‘business as usual’ by June 2021. The majority of respondents expect that to happen much later.
Expected return to “close to normal”*
- Nov/December 4%
- Jan/March 201 15%
- April/June 2021 20%
- July/Sept 2021 20%
- Oct/December 2021 13%
- 2022 or later 22%
- Never 6%
* Source: VisitBritain, Consumer Weekly Tracker
Other parts of the survey back up the impression that more people will be taking their holidays in Britain next year. VisitBritain find that 53% of respondents expect to take fewer overseas trips, and a further 23% could not say what their intentions were.
By contrast, confidence about taking a UK-based trip rises steadily the further ahead one looks. In the latest survey, only 17% of people were ‘fairly confident’ or ‘very confident’ about taking an overnight trip in the UK in November. However, looking ahead to October 2021 and beyond, that figure rises to 71%. (42% fairly confident; 29% very confident.) By October 2021, more than half all of all respondents expect to be taking longer UK breaks of 4 or more nights.
Looking at the same data, people’s holiday priorities have certainly changed. Outdoor areas have risen 31% in popularity, and outdoor leisure activities have risen 16%. By contrast, respondents were 19% less likely overall to visit indoor health venues such as pools and spas; 22% less likely to spend money on entertainments and events; and indoor attractions such as museums were also 22% down in popularity.
Implications for Property Owners
Making market predictions is always difficult but it’s especially hard during such unprecedented times. Generally, the expectation is that the tourism industry won’t return to normality in 2021, although that could change if the country sees dramatic progress in terms of vaccination. However, we cannot rely on the assumption that an effective vaccine will emerge, so the challenge for property investors is to try to gauge where the most reliable returns are likely to be found under the present conditions.
The parliamentary paper mentioned earlier notes that although international travel is being hard hit, “domestic tourism, which accounts for around 75% of the tourism economy in OECD countries, is expected to recover more quickly.”
If, as many predict, British holiday-makers continue to prioritise open spaces, then the best performers in 2021 may be properties in coastal and rural locations; areas where customers can maintain safe social distance while enjoying walks, beaches and a range of outdoor pursuits.
In terms of property type, there’s little evidence of any strong trends, but common sense suggests that tourists may be more wary of bigger hotels, where there may be a greater risk of contact in dining rooms, reception areas, lifts and stairwells. Moreover, since the bigger hotels tend often to be located in busier cities, they may also attract less demand because the cities themselves will have less widespread appeal.
An October press release by PWC notes: “In the bleakest outlook since benchmarking began in the 1970s, hotel occupancy rates in 2021 are forecast to be 55% across the UK, and could take four years to return to pre pandemic levels… The forecast is particularly bleak for London, where the overall revenue per available room is forecasted to fall significantly.”
By contrast, smaller self-contained holiday lets and serviced accommodation could see much steadier demand in 2021. Many of them will afford better access to outdoor attractions, and their smaller capacities may mean that customers feel more secure.
Nationwide, PWC expects a relatively slow return to normal, but it is careful to point out that the picture is likely to vary considerably between regions. It states: “The UK regions are expected to fare better than the capital in 2021, whether a vaccine is developed or not. A stronger staycation market will remain a fixture, whilst unpredictable overseas travel, ongoing restrictions and local lockdowns, will further fuel demand for domestic leisure tourism.”
Sam Ward, UK hotels leader at PwC, said: “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.”
Staycations and the City
If these predictions prove to be accurate, then it’s likely that properties in different tourism markets will yield very different returns.
For coastal and countryside properties, the outlook is comparatively good, although there are, of course, some short-term risks. Without a reliable supply of overseas visitors, the total volume of demand could fall. And there is always the chance that if the R rate climbs again in 2021, we may see further periods of lockdown, so domestic demand could also be constrained during certain months.
Those same risks also apply to urban properties, of course, but they have a further disadvantage in that consumer trends are moving away from big city breaks. Generally, short-stay tourist properties in more rural destinations look likely to fare better than their urban counterparts. However, that’s always assuming that city properties rely only on the visitor economy. In the great majority of cases, that’s simply not the case.
For many landlords with properties in bigger cities, tourism is only ever a side-issue. The bulk of their rental demand might typically come from workers and families; people with a resolute intention of staying put – both now, during the pandemic, and beyond. Longer term tenancies may not be so profitable as serviced apartments and short-stay tourist lets, but demand is less susceptible to disruptive events such as Covid-19. For those who want solid, dependable yields, targeting long-stay tenants in popular cities can still be an excellent strategy.
For those investors who have previously relied only on the tourism market in popular urban locations such as London, Manchester or Edinburgh, now might be a good time to consider a new strategy – if only for the short or medium term. While the pandemic persists, it might be worth considering a shift towards more reliable, long-term tenancies. There is no doubt that rental demand is extremely high in many British towns and cities, and longer-term rental agreements can still deliver very solid yields.
There is no evidence to suggest that 2021 will be radically different from 2020. There is no Covid vaccine as yet and, across various countries, infection rates continue to rise and fall in waves. These are unquestionably challenging times for everyone involved in the hospitality industry, and that includes property investors who rely on visitor spending to maximise their yields.
For those in coastal and rural destinations, the market outlook is relatively good. Confidence in international travel remains shaky and, with more flight cancellation battles looking likely, there are good grounds to expect the UK summer staycation to remain very popular in 2021.
For those with property in a town or city, changes in tourist behaviour may well be an irrelevance. Demand for long-stay tenancies remains very high and, during the pandemic, occupancy rates amongst conventional lets have held firm. Average rental values have risen, yields have been respectable in many regions and capital values have risen almost across the board.
The outlook for tourist-focused properties in urban locations may be less promising but there is still time for landlords to adapt their strategies and seek tenants from more reliable mainstream markets.
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For more information about investment opportunities and property marketing options during the pandemic, please call our advisory team on 01244 343 355.