EU Referendum: How Brexit Complicates the Hotel Industry

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On Thursday, British citizens voted to leave the European Union, leading to financial panic and the resignation of Prime Minister David Cameron.


The referendum, commonly referred to as “Brexit,” passed by a narrow margin as 52% of British citizens voted to leave while 48% chose to remain.

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Since the final tally, the British pound also dropped to its lowest levels since 1985 and more than 20 political leaders have resigned or face a vote of “no confidence.”

According to the Times, changes won’t be affectual for at least two years, though many are already predicting the decline of various UK industries, including a hard hit for tech startups as well as the travel and tourism industry, with a particular emphasis on the hospitality sector.

Both UK and EU citizens are expected to suffer under new constrictions on the flow of travel, goods, and services, which move more fluidly with Britain under the EU umbrella.

According to a report by the Association for British Travel Agents (ABTA) and Deloitte, “73% of business visitors to the UK are from EU countries,” with overall numbers translating into more than 6 million inbound tourists in 2014. In terms of travel expenditure, “44% spending is by EU nationals.” That’s £9.55 billion in 2014 alone.

With closed borders and impending changes to work permits and passports, many hotel managers and hoteliers are concerned about the future of their properties, since revenue is expected to plummet following an official Brexit.

So exactly is set expect to happen?

Fewer EU Guests

For American travelers, it’s actually a great time to visit the UK.

Aside from the falling British pound, which means you can get more out of your American dollars, overall travel expenses have gone down, with Buzzfeed reporting that Virgin Atlantic posted a roundtrip flight to London for just $500 Friday morning.

But EU nationals, however, may not find the reduced prices comforting enough to schedule a stay.

Since Brexit, there’s been a surge in hate crimes and xenophobic behavior across the UK. Polish and Muslim immigrants are finding themselves victims of offensive leaflets, graffiti, and even online abuse.

Prime Minister David Cameron and recently-elected London mayor Sadiq Khan condemned these actions, but the damage may already be done.

“Over the course of the past 20 years, the percentage of Britons ranking ‘immigration/race relations’ as among the country’s most important issues has gone from near zero percent to about 45 percent,” Vox’s Zack Beauchamp told NPR. Immigration reform was one of the key issues of the “Leave” campaign.

For those from targeted populations, the Brexit vote may paint Britain as an unwelcoming destination, resulting in many EU nationals finding other places to holiday. With EU nationals accounting for more than £9.55 billion just in business travel, it’s clear that the losses will be substantial.

Fewer Hotel Employees

The EU referendum may slow international tourism, and this decision will also affect hotel employees.

New immigration restrictions, including those placed on work permits, could result in a large number of hospitality workers having to leave the UK.

“In construction, manufacturing, energy and transport, about three-quarters of EU workers would not be allowed in under the immigration rules as they are today,” writes Gonzalo Viña of the Financial Times. “That rises to 94% of EU workers currently employed in hotels and restaurants.”

The sudden drop in employees can stretch a hotel’s staff thin enough to upset guest experience. Already, housekeepers have revealed how time constraints prevent them from giving a room a thorough cleaning. Imagine if your housekeeping staff were cut in half.

If travelers do take advantage of reduced travel rates and visit the UK, this influx can further encumber a small staff managing a packed property.

Only if hotel stays decrease will a smaller hotel staff be able to handle its workload, though a lack of guests may also cause massive layoffs to offset a decrease in revenue.

However, EU employees aren’t the only party affected. Brexit can also put its own citizens out of a job if they’re working in EU nations.

Hotel Construction Standstill

Despite the pound dropping and real estate values following suit, hotel construction may come to a standstill as a result of the Brexit vote.

Currently, London hotel properties have reached a tipping point as RevPAR (revenue per available room) is beginning to slow, although demand still overwhelms supply.

“London remains second in the top five most popular cities for hotel investors,” eHotelier reports, “after New York, followed by Los Angeles, Hong Kong and Paris.” This new drop in real estate prices could surge development, but a lack of skilled construction workers can make an investment meaningless.

Niccoló Barattieri di San Pietro, chief executive of Northacre, told CNBC that the UK construction industry already has a shortage of skilled workers and that the EU referendum could increase that shortage. Twelve percent of migrant workers currently fill the 2.9 million construction jobs in the UK.

It’s a shame for Belfast, which is “seeing the highest level of potential new construction,” eHotelier reports, with “over half [51%] of new hotel supply in the pipeline” geared towards more luxury and upscale property development.”

The combination of increasing costs and a smaller workforce under the strain of a tight timeline and budget may prove too much for new projects. The UK construction industry was shaky to begin with and projects running over schedule and over budget will only exacerbate the problem.

A focus on luxury and upscale properties only compounds the loss. High-end properties have the ability to lure in a wealthy clientele, which could also boost surrounding local businesses. But if construction across the UK slows, the revenue and economic boost may never come.

More?

How else do you think the hotel industry will be impacted by Brexit? Let me know in the comments below.

Looking for Hospitality Property Management software? Check out Capterra's list of the best Hospitality Property Management software solutions.

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