HOSPITALITY
CAPITAL GAINS L
ondon hoteliers may have peered into the abyss in 2009 but 2010 was an exceptionally good year for
them as they shrugged off the reces- sion. Robust average room rate (ARR) growth of 9 per cent took average rates to just over £126 and saw rev- enue per available room (RevPAR) rise 11.4 per cent to almost £104. This helped make London the top perform- ing hotel market in Europe. Against such a high base, compara- bles will be tougher this year and PwC expects to see more moderate rate growth. We forecast an ARR gain of 6.1 per cent during 2011, taking aver- age rates to £134.
London hotel occupancies have been creeping up since early 2000, reaching 82 per cent in 2010. Indeed Q2 and Q3 2010 broke past records for those quarters, averaging almost 88 per cent in Q3. Occupancies should continue to nudge up gently to average nearly 84 per cent this year; a 2.2 per cent gain over 2010, taking occupancy rates back to levels last seen in the mid to late 1990s and 7 percentage points above the 30 year long term average of 76.8 per cent. This will allow hoteliers to grow rates further. In terms of translating these trends into revenue per available room (RevPAR), healthy occupancy and ARR gains
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mean we don’t anticipate London see- ing a pre-Olympic dip this year; quite the opposite in fact. More business travellers paying more for their rooms should help a gain of 8.3 per cent on top of 2010’s 11.4 per cent gain, tak- ing RevPAR to £112.50. However this performance could be held back by above average increases in supply. It’s not to say that business isn’t challenging or that lead times aren’t short. Competition is fierce and new luxury supply is likely to challenge London’s existing hotels. Across the country, operators face pressures from owners keen to raise rates and from corporate negotiators keen to control them. The Royal Wedding may be the icing on the cake for some, but could prove lucrative only for those hotels close to the route. On the other hand there are no shortage of dark clouds threatening to spoil the fun; economic uncertainty here and in our key mar- kets, faltering consumer confidence and a supply spike could slow ARR growth towards the end of 2011.
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London is set for an increase of more than 10 per cent in hotel stock between 2010 and 2012 as the capital prepares for the Olympics, but is there enough long term demand? Liz Hall talks us through PricewaterhouseCoopers’ research on the London market
AN OLYMPIC BONANZA So, what’s PwC’s forecast for the Olympic year? Unsurprisingly we expect that 2012 should be a good year for London but it may not match the expectations of some. Yes, Q3 could make many hoteliers’ dreams come true with the Farnborough Airshow and the Olympics in the same quarter. We anticipate London going in to 2012 with some levelling off but by and large trading very strongly. Outside of the crucial Q3 period, we remain concerned that reduced demand and above average room supply additions will take their toll on London trading.
LONDON HOTEL STOCK RISE In the run-up to the Olympics, a large amount of additional supply will open in London. If all this supply is realised it represents an increase of around 10.6 per cent in rooms between 2010 and 2012. To understand the effect of this supply on room occupancy and rates, we used data from Visit London’s London Hotel Development
ISSUE 2 2011 © cybertrek 2011
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