London back on the podium as hotels smash occupancy records
Improving economic conditions, the return of the business traveller and international demand should lift the London rate seven per cent for 2010, with the average room rate (ARR) for the capital reaching £124 (up from £116 in 2009 - about R1364 and R1276 respectively). This should boost a 2010 RevPAR gain of almost 9%.
Robust rate growth (5.1%) should continue in 2011 with strong occupancy growth of 4.1% - taking room rates to £130, occupancy to 85%, and RevPAR to over £110 (about R1210). This is over £9 (about R99) higher than 2010 and £17 (about R187) higher than 2009 in terms of RevPAR.
Robert Milburn, UK Hospitality & Leisure Leader, PwC, said: "London's hotel scene continues to bask in the glory of its recovery, and (apart from April 2010 which was impacted by an early Easter) has now seen 11 consecutive months of occupancy growth. Much will depend on the wider economy, confidence and continued favourable exchange rates, but we expect London to maintain this pace."
"If inflation were stripped out ARR would still have some way to go to hit historic peaks but, on current trading, occupancies are already breaking records. In fact, we are forecasting record highs for each quarter in 2011, topping out at 90% in Q3."
Provinces play catch up
Occupancies in the provinces have improved but rates are still struggling to get back into positive territory. Provincial ARR should average out for 2010 at around £61 (about R671), a 1.6% decline on 2009, although moderate occupancy growth should lift RevPAR by 1.6%.
In 2011 the Provinces should see a more sluggish 0.7% occupancy gain, taking occupancy to 67%. Following two years of decline a welcome ARR gain of 2.5% should take average rates to £62.50 (about R690) while RevPAR growth of 3.2% nudges it to £42 (about R462 - some way behind the 2007 peak even in nominal terms.
Milburn explained, "Having dropped off the pace over the course of the downturn, the Provinces now rely on regional economic performance and domestic business travel to get back in the running."
"They suffered a revenue decline equalling that of 1992 but, vitally, corporate travel, meetings and conferences are showing early signs of a gentle recovery. Sporting events, such as the Ryder Cup, have prompted a bookings rise in certain regions, while international demand and the Edinburgh festival pushed RevPAR up by a spectacular 15% in July in the Scottish capital."
The Olympic tightrope: balancing supply and demand
With the Olympics comes renewed hope for UK GDP, hoteliers and the tourism industry. London expects to see high levels of demand for accommodation, increased occupancy and room rates.
London is generally considered an under-hotelled city with only around 2000 rooms added (on average) each year. However, the capital is high on the list of must-see destinations for operators and developers - and double the volume of rooms are in the pipeline for this year.
Liz Hall, head of Hotels Research, PwC, said: "Although the race is on to build rooms ahead of the Olympics, and the increase in demand stimulates the development of new hotels, the handover of supply to demand is not necessarily immediate or smooth, and can create shortages, high occupancy and raised rates - as well as the reverse."
The expected demand for hotels due to the Olympics will spike in the summer of 2012, but the supply will increase beforehand. This could lead to a depressing effect on occupancy and ARR in London hotels in 2011.
It is unclear whether all planned rooms will be built, postponed or cancelled, but in a maximum construction scenario (assuming 4305 new rooms are built - 2105 rooms more than the average) the forecast for London RevPAR growth for 2011 could drop from 9.3% to 5.7%.
"Hotels that are expanding to capture Olympic trade alone are rather missing the point. The impact of the Games should be positive but could be short lived and will depend on location. On the flip side some leisure visitors may well shun London at all costs to avoid congestion or security fears," Liz added.
Big spenders walk back into grand hotels
The improving economic conditions are stimulating revival in both corporate group and transient business travel. This should reduce the proportion of discounted rooms and have a positive impact on room rates.
Some of the major hotel groups are also seeing the re-emergence of the high end corporate traveller.
"Perhaps the return of that grand dame of London hotels, the Savoy, and the re-opening of other luxury hotels this year and next herald a new luxurious golden age for London," said Milburn.
"Low consumer confidence, uncertainty over interest rates, and the strength of the pound will all impact the performance of UK hotels. However, the new elephant in the room is the potential impact of the Comprehensive Spending Review, as public sector travel budgets are squeezed in the same way as corporate budgets have been over the past two years." he concluded.
