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London hotel occupancy, prices to fall

Hotel RoomNew estimates from PricewaterhouseCoopers (PwC) predict that both hotel occupancy and prices will decline next year in London.  Hotel occupancy is expected to fall to 80% in 2012 – nearly 2% less than last year – and is due to drop even more to 77% next year, bringing occupancy to its lowest since 2005.  The average daily rate (ADR) is expected to be at a record high £143 by the end of this year – £10 more than last year – but this will help revenue per available room (RevPAR) rise 4% to £114.71, which will be a record.  However, RevPAR is predicted to decline 7% to £106.42 next year as the economy, supply problems and comparisons with the Olympic Games have a negative effect.

The UK had the biggest increase in room supply from new developments this year compared to the last ten years, as the Games were a catalyst for development in London on a scale that’s unlikely to happen again.  The growth in supply is still more than average, and it will impact occupancy rates during a weaker travel environment.  Supply is expected to grow 7% (more than 8,000 new rooms) this year and 3.8% (4,900 new rooms) next year.  Some areas in the regions are also experiencing above average supply gains, while new budget brands will continue forcing average rates down.

PwC hospitality and leisure leader Robert Milburn says that the growth in supply is supported with high occupancy and average daily rates.  This could result in an adjustment period while new supply is absorbed.  Brands with the relevant products and in the right locations will be able to get through this period easier, while others will struggle more.

Many cities across the UK have had an unsatisfactory year due to the Games deterring visitors, and the best performing regional cities have been Aberdeen and Belfast.  During the first six months of this year, exceptionally poor weather put a damper on holiday demand, and this is forecast to pull occupancy down 2.8% to nearly 69%.  PwC expects occupancy to experience a slight decline to 68% next year.  The regions are also expected to see a marginal gain in ADR this year to £58.39, and there aren’t any significant changes expected next year.  Despite this, RevPAR is predicted to decline 2.8% this year, without much change for next year.

PwC head of hospitality and leisure research Liz Hall, who also authored the UK hotels forecast for next year, says that the hotel market in London has shown amazing resilience since the recession started.  This has been supported with one-off events such as the Diamond Jubilee and Olympic Games.  It’s hard to feel confident about next year, she continued.  Some companies will do fine, but weak economic and travel conditions, more new rooms to fill and a fight for market share mean many will take a hit.

Hall added that there’s been a burst of budget, boutique and high-end branded openings throughout London – frequently at newer hotel properties.  These new openings differentiate themselves and offer cheaper rates to lure guests from mid-range properties to gain market share.  At least 2,400 boutique and high-end rooms have been opened in London over the last couple years, and it’s become even more necessary that the middle ground be reinvented and differentiated.

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