London hotels’ face post-Games hangover

Demand for rooms slackens after a construction boom in build-up to Olympic Games

Gulf News

London: The UK capital is poised for a hotel hangover as demand for rooms slackens following a construction boom in the build-up to the Olympic Games.

The capital’s hotel occupancy is projected to drop by nearly four percentage points to 77 per cent in 2013, the lowest occupancy rate since 2005, according to research by PwC, as business travel weakens. Occupancy is to fall more than two percentage points this year to 80 per cent.

The report, entitled After the Party, said events such as the Queen’s Jubilee and the Olympics had helped drive revenue per available room - a key industry sales measurement known as revpar - to a record £143 this year, a jump of £10.

But revpar is due to fall by seven per cent to £106 in 2013 as the market falters and the industry feels the effect of there being too many rooms for the level of demand.

Liz Hall, head of hospitality and leisure research at PwC, said room-building in the run-up to the Olympics had been the largest spurt in a decade, and would leave too many rooms once the Games-driven boost to demand had faded.

“It’s hard to feel confident about 2013 [when] a weak economic and travel environment, a fight for market share and more new rooms to fill mean many will feel the hit,” she said.

“Supply growth remains above average and in a weaker travel environment this will inevitably take longer to absorb and will impact occupancy rates.”

Despite economic nervousness London is likely to see room supply growth of around seven per cent in 2012, equating to about 8,000 new rooms. However, that will decrease to 4,900 new rooms in 2013 according to PwC.

Regional hotels are faring worse. Occupancy rates are projected to have declined by three per cent to 69 per cent by the end of 2012 as poor weather saw many potential ‘staycationers’ - people who holiday in the UK - seeking bluer skies abroad. Revpar is also expected to have declined by three per cent this year and remain flat in 2013.

“In the regions demand is more dependent on the domestic economy, which has been squeezed by high inflation and the aftermath of the financial crisis, said Mrs Hall. “Revpar is still 10 per cent below its 2007 level [and] despite near 70 per cent occupancy rates hoteliers have been unable to pass price increases through to the market.”

Across the country middle-range hotels are projected to be the most squeezed as they are increasingly challenged by the budget sector and boutique operations, such as pub inns, both of which are capturing market share.

Whitbread, which owns the Premier Inn budget hotel chain, plans to add another 4,200 Premier Inn rooms this financial year. It has set itself the target of 65,000 UK rooms by 2016, and plans to boost its market share from about six per cent to 10 per cent.