RSM: Scotland’s hotels remain resilient despite national minimum wage increase

The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy increased to 73.4% in Scotland last month, up from 72.3% in March. Scotland’s average daily rates (ADR) of occupied rooms also increased to £121.93 in April 2024, up from £104.77 in March, £114.19 in April 2023, and pre-pandemic levels of £88.72 (April 2019). In comparison, ADR of occupied rooms in the UK were flat year-on-year at £139.51 in April, showing that Scotland is bucking the wider UK trend.

Scottish hoteliers saw RevPAR increase from £75.76 in March to £89.51 in April, up from £85.94 in April 2023 and £69.48 in April 2019. Comparatively, RevPAR figures in the UK and London hotels were static last month when compared to the previous year, at £103.90 and £159.72 respectively.

Labour costs per available room were up from £13.38 (March) to £14.80 (April) in Scotland, due to the rise in NMW resulting in flat gross operating profits at 27% last month, as seen throughout the UK and in London, highlighting a NMW hit to the bottom line.

Stuart McCallum, partner and head of consumer markets in Scotland at RSM UK, said: “Despite ongoing cost pressures recently accelerated by the national minimum wage (NMW) increase, Scottish hoteliers appear to be performing relatively well, with average daily rates and RevPAR increasing in April vs the previous month, year, and pre-pandemic levels. More encouragingly, this bucks the wider trend in the UK and London, which saw many hotels achieve flat levels of growth over the same period.

“However, businesses will be mindful of various cost pressures as they look to maintain healthy levels of occupancy ahead of a busy summer, and we’re also yet to see the full impact of the national minimum wage increases. While hotels have been able to charge higher room rates compared to pre-pandemic levels, little of this has been making its way through to the bottom line, with profit margins being squeezed. In addition, the changing political landscape will be adding uncertainty in the market. For some hoteliers, the fierce competition for hotel staff over the last couple of years has meant they are already paying above minimum wage. However, a rise in NMW has a knock-on impact as it ripples through the rest of the workforce as higher paid staff demand similar percentage increases.”

He added: “But, as we enter the summer months, the arrival of warmer weather and various international events including The Open at Royal Troon, Edinburgh Fringe Festival and Taylor Swift’s Eras tour will boost Scotland’s hotel sector. This will also be strengthened by the new flights direct to Scotland from the US and China, enhancing international connectivity and opening up new tourism opportunities.”

Thomas Pugh, economist at RSM UK, added: “April was a tough month for consumer businesses with miserable weather keeping them out of shops and putting them off house viewings. It seems a similar picture for the hotel sector as well.

“However, there are good reasons to expect spending on hospitality services to grow from here. First, households’ real disposable incomes are set to rise rapidly from April as inflation drops back to near 2% and tax cuts kick in, which will boost overall consumer spending. What’s more, consumer confidence should continue to rise ensuring that households spend most of their new income.

“Admittedly, spending on hospitality services has been relatively strong recently when compared to spending on goods. There may be some catch-up spending on retail goods over the next year, especially as goods prices look set to fall. However, the increase in consumer incomes means that even if consumers restock on retail goods, they should also increase spending on hotels and accommodation.

“What’s more, a strong dollar and rapid growth in consumer incomes will make the UK a more attractive destination for visitors from America. Similarly, as the European economies rebound, demand for travel from the continent will increase.”