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Zolfo Cooper, AM:PM, HVS Hotel Bulletin: Q3 2014 Demand

Significant RevPAR increases as international sporting events stimulate growth

All of the 12 cities reviewed recorded RevPAR growth in Q3 2014, with RevPAR increasing by an average of 20% over Q3 2013. In the year-to- date, RevPAR has grown for every quarter and in every location analysed in this bulletin. RevPAR growth is almost exclusively driven by rates in the cities analysed, with rates increasing by an average of 19% in Q3 2014.

In London, hoteliers increased rates by 12% with only a 2% decline in occupancy. Overall, RevPAR increased by 10% in the quarter. Although rate driven RevPAR improvements enhance profitability, a material reduction in footfall can impact ancillary revenue streams.

The top performers this quarter included Glasgow, Liverpool and Leeds where major international sporting events boosted the cities’ hotel and tourism industry. In addition, Cardiff’s Q3 RevPAR increased by 27% as the city hosted the 2014 NATO Summit. At the opposite end of the scale, Aberdeen’s 3% RevPAR increase was the lowest of the cities reviewed.

Commonwealth Games. Over 600,000 people visited the games, with 1.2 million tickets (96% of those available) sold for events predominantly held in Glasgow.

RevPAR in Glasgow increased by 48% in Q3 2014 as the city hosted the XXth

In Liverpool, Q3 RevPAR increased by 33% compared to the previous year. This increase was underpinned by the Open Championship, which was held at Royal Liverpool Golf Club in July. Liverpool’s performance was further bolstered by 75,000 delegates attending the International Business Festival 2014 which also took place in July.

Leeds recorded Q3 RevPAR growth of 26% due to Yorkshire hosting the Tour de France’s Grand Depart. Millions of tourists lined the 190km route of the first stage of this year’s tour.

London, Birmingham, Cardiff, Manchester, Leeds and Newcastle are likely to record similar increases in Q3 2015 as they host Rugby World Cup matches. However, it remains to be seen if these cities can capitalise on these events to drive longer term growth.

Investment indicators

10% 15% 20% 25%

5% -

Hoteliers push rates to drive RevPAR growth

Average occupancy across the cities reviewed (83% in Q3 2014) was the highest achieved on a quarterly basis since the downturn. Recent data, however, suggests that occupancy is plateauing. As such, the challenge for hoteliers is to increase rates without cannibalising occupancy. Hoteliers are likely to benefit from improvement in the macroeconomic environment and certain cities will find it easier to command higher prices. For example, the majority of consumers are now regularly paying over £200 per night in Central London.

This quarter’s data demonstrate that hoteliers are meeting this challenge. 11 of the 12 cities reviewed achieved double-digit RevPAR growth and Cardiff, Birmingham, Liverpool, Leeds and Glasgow increased rates by over 20% compared with the previous year. Material rate growth with limited impact on occupancy is a sign of performance maturity and is likely to have a significant positive impact on the bottom line.

Investment indicators

Although high-level demand and supply metrics alone will never fully inform an investment decision, the graph below is intended to highlight demand and supply data for cities that may attract, or concern, investors.

The interaction of demand growth, historical supply and active pipeline are considered. Demand growth has been calculated as the average RevPAR growth for the last four quarters to provide an indication of recent demand trends. Historical supply has been calculated as the increase in rooms in the last two years in order to allow for an appropriate amount of time to contextualise recent trading performance. Active pipeline has been included in the analysis to provide an insight of each city’s hotel market in the upcoming years. Only bedrooms with confirmed opening dates are included.

Characteristic of a cyclical upturn, demand has continued to grow strongly in spite of additional supply in Q3 2014. On average, active pipeline is 10% of current supply in the 12 cities reviewed.

Demand growth Positive indicators

Source: AM:PM, HotStats Notes: Demand growth calculated as the average quarterly RevPAR change for the last four quarters Historical supply change calculated as the change in hotel bedrooms between June 2012 and 2014 Active pipeline calculated as the active pipeline as a percentage of current supply The majority of the 12 cities reviewed appear to be displaying positive indicators - the arrow has been shaded to reflect this

02 Advisory & Restructuring

Historical supply change

Active pipeline Risk indicators

GS Magazine 47

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