The proposed introduction of a tourist tax, or overnight visitor levy, has the potential to add another cost consideration for both domestic and international visitors.
While the final structure of any levy is still to be determined, the principle is relatively straightforward: visitors staying overnight in hotels, serviced accommodation or short-term lets could be required to pay an additional charge on top of their accommodation cost.
For property owners, investors and operators, the key question is therefore not simply how much the tax may be, but whether it begins to influence visitor behaviour and accommodation demand.
An Additional Cost for Visitors
For many visitors, particularly those travelling for short stays or higher-value trips, a relatively modest additional charge is unlikely to be enough to prevent them from travelling altogether.
However, that does not mean it will have no effect.
Visitors are increasingly conscious of the overall cost of travel. Accommodation, transport, food, entertainment and other associated costs are all considered when deciding whether a trip represents good value.
An additional overnight charge may therefore encourage some visitors to look more closely at the total cost of their stay before booking.
This is likely to be particularly relevant to families, domestic tourists and other price-sensitive travellers, where the cumulative cost of a longer stay can quickly become more noticeable.
Could Visitors Become More Selective?
The most likely impact may not be a significant reduction in tourism, but instead a more considered approach to travel.
Visitors may become more selective over:
- where they stay;
- how long they stay;
- when they travel;
- how far in advance they book; and
- whether they take certain trips at all.
A visitor who may previously have booked several weekend breaks each year may decide to take fewer. A family planning a seven-night stay may opt for five nights instead. Others may simply compare accommodation options more closely before committing.
Individually, these changes may appear relatively small. However, across a large visitor market, even modest changes in behaviour can have an effect on overall demand.
Impact on Hotels
Hotels are likely to be affected differently depending on their position in the market.
At the luxury end, where accommodation costs are already relatively high, an additional visitor levy may represent only a small proportion of the overall cost of a stay and is therefore less likely to materially affect demand.
Budget and mid-market hotels may be more sensitive.
These operators often compete heavily on price, particularly during quieter periods. If the total cost to the guest increases, hotels may find that they cannot always pass the full cost of the levy on without affecting occupancy.
This could create greater pressure on room rates and margins.
Impact on Short-Term Lets
The short-term letting market may experience a similar effect.
Properties catering for families and groups can continue to offer good value when compared with booking multiple hotel rooms, and this may help protect demand.
However, short-term lets are also often selected on price.
If an additional visitor charge materially increases the total cost of the stay, guests may become more inclined to compare different areas, properties or alternative forms of accommodation.
For landlords and operators, this may place greater emphasis on maintaining competitive pricing and strong occupancy levels.
Hotels Versus Short-Term Accommodation
The proposed levy could also affect the relationship between hotels and short-term lets.
Visitors are increasingly likely to compare accommodation based on the final amount payable rather than the advertised nightly rate.
This means that pricing transparency will become increasingly important.
Where two accommodation options are broadly comparable, even relatively small differences in the overall cost could influence the final decision.
The exact impact will also depend heavily on how any levy is structured. A fixed nightly fee, a percentage-based charge or a per-person charge could each affect different types of accommodation in different ways.
Potential Impact on Property Investors
For investors in hotels, serviced accommodation and short-term lets, the introduction of a visitor levy should form part of future investment considerations.
It does not necessarily undermine the viability of these sectors, particularly in locations with consistently strong visitor demand.
However, investors may need to consider:
- the sensitivity of their target market to additional costs;
- whether the levy can realistically be passed on to guests;
- the effect on occupancy during quieter periods;
- the potential impact on achievable nightly rates;
- competition from neighbouring locations; and
- any additional administrative requirements placed on operators.
These considerations are likely to become increasingly relevant if different local authorities introduce different rates or charging structures.
Location Will Remain Important
The effect of any tourist tax is unlikely to be uniform.
Locations with particularly strong visitor demand may prove relatively resilient. Visitors travelling to London, for example, may still regard the destination itself as the primary reason for their trip and accept the additional cost.
Other locations may be more price-sensitive.
Where visitors have greater flexibility over destination, even small differences in the cost of accommodation could begin to influence where they choose to stay.
This could become especially relevant where neighbouring authorities adopt different approaches to the levy.
Stokemont’s View
We do not believe the introduction of a tourist tax will necessarily result in a significant immediate reduction in hotel or short-term-let demand.
However, it is reasonable to expect visitors to become increasingly conscious of the overall cost of their stay.
The likely effect may therefore be seen more in visitor behaviour than in headline demand.
Guests may book shorter stays, compare accommodation more carefully, travel less frequently or become more selective about the trips they take.
For hotel and short-term-let operators, this means value for money is likely to become increasingly important.
For investors, the key will be to understand the level of demand within a particular location and how sensitive that demand is to changes in overall accommodation costs.
As further details of the proposed levy become available, it will be important for owners and operators to consider its potential impact when assessing future occupancy, pricing and investment returns. Our Valuation team will be closely reviewing this in the months to come.
