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Brexit hits UK hotels with falling domestic demand, tightening labor supply

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Brexit hits UK hotels with falling domestic demand, tightening labor supply

U.K. hotel owners and operators are experiencing lower demand from domestic business customers and are struggling to fill vacancies due to uncertainty around the country's future relationship with the European Union, leading figures from the hospitality industry told a conference in Munich.

Speaking during a panel discussion Oct. 9 at EXPO Real, Mark Anderson, managing director of property and international at Whitbread PLC, which owns and operates 1,200 Premier Inn hotels in the U.K., said increased tourism due to weaker sterling is being countered by businesses cutting back on costs.

"[The damage from Brexit to the hotel sector] is going to get worse before it gets better, particularly in the U.K. and the domestic business-to-business market," he said.

Economic damage from Brexit to industries like house building, which provides a lot of Whitbread's U.K. business customers including architects and project managers, would have a significant impact on the company, he added. "The [business-to-business] market is about 60% of our bookings and around 70% of our revenue," Anderson said. "We're already starting to see signs that other businesses are tightening their expenses, they're slowing down travel and attendance at conferences, and things like this."

The U.K. hospitality industry is also experiencing a labor shortage as EU nationals leave the U.K. amid ongoing uncertainty over their future in the country, said Felicity Black-Roberts, vice president of development, Europe, at Hyatt Hotels Corp., which owns or operates 27 hotels in the U.K.

EU nationals, which make up between 12.3% and 23.7% of the 3 million U.K. hospitality workforce according to a March 2017 KPMG report on labor migration in the sector, must apply for settled status if they want to continue living and working in the U.K. post-Brexit. The deadline for doing so is the end of June 2021 if the U.K. leaves the EU with a deal, or Dec. 31, 2020, if no deal is reached.

"We're seeing real problems finding labor, so we're starting to see our labor costs rise," Black-Roberts added. "We have a vacancy list every Friday that's alarmingly long and getting longer. And so the longer the U.K. procrastinates about what the hell it's going to do, the more difficult it gets for businesses to operate. We have to make a decision."

This shortfall in labor is likely to worsen if the U.K. government delivers on its plans to restrict migration of EU nationals, according to the KPMG report. "In a scenario in which there is no new migration into the U.K. hospitality sector from 2019; existing EU nationals are not required to leave; and the recruitment of U.K. and rest of world workers remains constant, we estimate that the hospitality sector faces a recruitment shortfall of upwards of 60,000 per annum workers from 2019," it said. Sector growth is dependent on 62,000 new EU migrants coming to the U.K. annually, it added.

Broader government policies are compounding the Brexit impact and making operating conditions in the U.K. more difficult, Anderson said. "We see [property taxes] going up consistently," he said. "We're now seeing the high cost of importing goods and services from outside the U.K. because of the weak pound, and now labor is becoming punitive. And recent government proposals to increase the living wage still further will make it even harder in a tight labor pool, particularly in London."