The U.K. has decided to leave the European Union, and the process for its departure is likely to put pressure on the country’s hotel industry, staffing and international capital.
LONDON—The United Kingdom’s hotel industry, along with the rest of the country’s economy, has entered “a period of uncertainty” as the business community grapples with the fallout from Thursday’s vote to leave the European Union, sources said.
After the vote results were announced, the pound sterling fell to its lowest level against the U.S. dollar since 1985, which sources said could affect real estate values and the cost of capital. With U.K. currency devalued, it could also mean fewer immigrants will apply for lower-level positions in the country’s hotels.
The weaker pound might, however, also result in more inbound tourism as foreign travelers view the U.K. as a bargain destination.
In the larger picture, the Brexit vote could mean a splintering of the U.K. The result—17,410,742 (51.9%) U.K. residents voted to leave while 16,141,241 (48.1%) voted to remain—might push Scotland, to seek a second independence referendum, which BBC News reports is “highly likely.” And Northern Ireland’s politicians are already looking to do the same, according to The Independent. Prime Minister David Cameron, who was vocal in his desire to remain in the EU, announced he would step down.
John Brennan, CEO of Irish hotel owner and operator Amaris Hospitality—which has 73 hotels under eight hotel brands—said he is hopeful, even though he acknowledged the industry will initially experience turbulence.
“We are now entering a period of uncertainty as Britain prepares the ground for exit,” Brennan said. “While the negotiation period could have an effect on the markets overall in the short term, the hospitality sector is well-placed to remain robust during this period.”
Share prices on the London Stock Exchange were hit hard by the Brexit vote, including U.K.-based hospitality companies such as Whitbread and InterContinental Hotels Group. As of press time, Whitbread’s shares had fallen by 10.7%, while IHG shares were down 1.7%.
The reaction from members of the hotel industry ranged between disappointment and confidence.
Guy Grainger, CEO of Europe, Middle East and Africa at Jones Lang LaSalle’s Hotels & Hospitality Group, said in the short term, hoteliers might see slow demand as businesses consider their investment decisions.
“The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues,” Grainger said via email. “Investor sentiment may also remain subdued in the short to medium term, although a drop in (the pound) sterling may provide a moment in time for some opportunistic international investors.”
Now that the vote to leave is final, economists predict the process to prepare the U.K. to be independent of the European Union could last two years, if not longer, due to negotiations between the two entities.
The new business environment for hotels
Sources said hotel companies worldwide should expect to feel the effects of the U.K.’s Brexit vote, as the country will be a dramatically different business, capital and tax environment.
Ian Stewart, chief U.K. economist for business advisory Deloitte, said during a Friday webinar that the vote to leave will result in major negatives for liquid U.K. assets and the pound sterling.
However, Stewart also said the institutional fundamentals in the U.K. remained strong, with most economists predicting average long-term growth is still on track for around 2% annually.
“The government will not sit still, and one way it can ease the coming months is to show it is open for business,” Stewart said
He echoed the government’s Treasury Department prediction that an economic slowdown is likely but a recession is not.
“In the long term, the key question is the extent U.K. can get a favorable trading environment,” Stewart said.
Christiane Cunningham, director of European regulatory affairs for Deloitte, said the view from mainland Europe was one of “shock, dismay and concern,” which came with worries about a domino effect in remaining European Union member states.
“It will create a lot of political pressure on Germany and France … which will need to work closely together,” She said. “I do not think this is the beginning of the end of the EU. It is seen in Europe as a peace project; this is what we learn at school, while the U.K. has always looked on this differently. This is a severe reality check for Europe.”
Cunningham said Brexit is a crisis for Europe. She said the French and German stock exchanges fell harder than the FTSE 100 Friday.
“This is a big turning point for the EU, make no mistake. Euroskepticism is not only a U.K. phenomenon,” Cunningham said.
The decision is likely to put pressure on the hotel industry’s human resources departments regarding staffing.
Thomas Mielke, managing director of AETHOS Consulting Group, said he was saddened by the result of the Brexit vote. He believes it is a mistake to be isolated in a globalized marketplace,.
“My gut feeling, and from what I have heard from our clients, is that the industry is heavily reliant on European labor, specifically service sector and front-line staff,” Mielke said. “To have tighter controls on borders, and more management of immigration, will have consequences. And these jobs are not typically being picked up by British employees. That is of course a generalization, but it does seem they are not interested.”
Mielke said positions might only be filled by offering higher salaries, which might result in higher costs, lower staffing levels and a reduction in service.
He also added the academic quality of hotel-industry universities was not as high in the U.K. as it is in the mainland Europe.
“It’s a case of quality control,” he said. “Continental Europe has solid academic institutions that produces great talent but do not hold British passports. How do (British hotels) get those future leaders? There are credible institutions in the U.K., but by far not enough. The hotel industry is a career in Europe, not a stepping stone to a ‘better’ job as it seems to be in the U.K.”
Rick Cudworth, Deloitte’s resilience and crisis management leader, said hoteliers should have been prepared for the Brexit vote.
“Now is the time to act,” he said. “If you have already prepared, now it is about broadening your perspective. Explore the opportunities, too.”
Cudworth said hotel executives should take the following steps:
• Understand the choices and options now available to you;
• consider what you want to influence and your key priorities in policy or negotiations;
• make informed decisions on where you want to play, and how;
• develop your own strategic response plan; and
• effectively monitor data sources to minimize strategic drift.