Hotel insolvencies double; worse to come

Insolvencies in the hotel sector doubled in the final months of 2008 as the UK economy went into recession and things are set to get much worse, according to a report by PricewaterhouseCoopers (PwC).

In total 36 hotels failed in the final three months of 2008, the highest quarterly figure since the early 1990s and double the 18 recorded in the previous three months.

There were also 15 insolvencies in the final quarter of 2007, which brought the total number of insolvencies over 2008 to 87, almost double the total of a year earlier.

The biggest casualty was Folio Hotels, whose assets were carved up last week by administrators between Mulbourn, a new company set up by the group's former management, and Bespoke Hotels.

Niche Hotels, as revealed by Kitchen Rat, has also found things tough. Two of the group’s hotels were placed into the hands of administrators, including Wyck Hill House hotel in the Cotswolds, in December of last year.

Stephen Broome, director of hospitality and leisure for PwC, said that experience suggested that the hotel industry was hit later in the cycle than many other sectors, due in part to extended lead-in times for bookings.

He said: “The impact tends to fall six to twelve-months later than other sectors. However, the negative impact on hotel performance is likely to accelerate sharply at the start of the technical recession, suggesting these early casualties are just the beginning.”

Two weeks ago, the Real Hotel Group which operates the Purple chain, appointed BDO Stoy Hayward as administrator and some of its hotels are understood to have attracted interest from Whitbread's Premier Inn chain.

But Broome said that the recent increase in insolvencies was not due solely to a fall in demand but to “flawed business models”.

“Many of the failures are the result of unsustainable levels of rent or debt, where the recent downturn has simply dealt the final blow,” he said.

He noted that although some heavily indebted private equity-backed operators could be at risk, many might survive as banks sought alternatives to administration.

“Banks will not want to flood the market, so we'll probably see many opt for some form of financial restructuring. “Even if there were buyers out there, and debt funding was available, putting lots of hotels up for sale would depress values further.”

Restaurant sector hit hardest by UK recession>>

150 jobs lost as Real Hotel Group closes four hotels>>

Two Niche Hotels in administration>>

Folio Hotels in administration>>

By Gemma Sharkey

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