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September 29 2022, Virtual
But UK insolvency rate down 4% in Q1
The number of hotels in the UK going bankrupt in June jumped 120% year-on-year, figures from PricewaterhouseCoopers (PwC) have revealed.
The report out today (July 28) found that 15 London-based hotel groups had failed in the first quarter of 2009.
But the figures showed a "long awaited" 4% drop in the UK's insolvency rate in the second quarter.
Bankruptcies in the capital returned to the UK average quarterly rate of six failed hotels.
PwC's director Stephen Broome said: "The majority of hotel failures in Q2 are independent single asset businesses that have passed the point of no return.
"Any business unable to generate sufficient cash flow to service current debt levels is at risk of a similar fate given the uncertainty of the timing of a recovery in demand for hotels."
PwC said lenders had shifted their focus from construction and property to key hotel performance indicators.
Mr Broome said: "We expect lenders to focus more intensely on hotel debt levels this autumn. So far we have seen an inclination to seek alternative financial restructuring that is less likely to simply result in further losses through debt write downs.
"Unless it's the only way out, the number of hotel related insolvencies will probably remain at a lower level."
Mr Broome said lenders, who were hoping to rescue their investments as hotel values recover, may have to wait years based on past economic downturns.
He added: "Lessons from the 1990's recession tell us that it may take between five to seven years for values to bounce back enough for this to happen."
Hotel insolvency in London returned to the UK average rate in the second quarter due to improved demand through lower room rates.
Mr Broome said London's hotels had made up for the drop in corporate travel demand by attracting more leisure customers.
"However the uncertainty caused by the acceleration of swine flu cases coupled with the forecast strengthening of the pound means hoteliers should resist the temptation to start raising room rates," he added.
"Any hiking could easily upset the current balance that exists between both value-seeking London tourists and hoteliers alike."