Hotel Online  Special Report
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Hotel Investors and Operators in London Not Dissuaded
by Year over Year Declines in Performance
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The lure of the London hotel market

February 20, 2004 - For many hotel operators and investors, London remains a key strategic location. Despite widely reported difficulties in trading conditions over recent years, this has done little to dissuade both operators and investors from targeting the capital.

According to VisitLondon, between January 2001 and July 2003, over 5,000 rooms were added to London hotel supply through a mixture of both new openings and renovations. A further 4,000 rooms were recorded as being under construction during this time - a number of which opened towards the end of 2003. Whilst supply has continued to increase, hotel operating performance has moved almost as rapidly in the opposite direction.

Londonís revenue per available room (revPAR) has declined by more than 20 percent since 2000. The table below illustrates the trend in Londonís occupancy, average room rate and revPAR since the year 2000, which is widely regarded as the peak of Londonís hotel cycle.
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London hotel performance
Occupancy (%) 
Average room rate (£) 
RevPAR (£)
2000 81.0  111  90
2001 73.3  107  78
2002 75.2  100  75
2003 73.6  96  71
Source: HotelBenchmark Survey by Deloitte
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Despite the decline in performance, in comparison to the rest of the UK, London maintains an enviable premium as shown in the table below. RevPAR for London hotels was more than 66 percent higher in 2003 than their counterparts in the UK regions. Londonís strong commercial and leisure business base makes the UK capital a prime target on any hoteliers shopping list.
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London and regional UK hotel performance
Occupancy (%)
Average room rate (£)
RevPAR (£)
2003
2002
% Change
2003
2002
% Change
2003
2002
% Change
Regional UK  69.4 69.2 0.3 61 61 -0.6 42 42 -0.3
London 73.7 74.9 -1.5 95 98 -3.2 70 73 -4.7
Source: HotelBenchmark Survey by Deloitte
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Last year saw Rocco Forte re-entering the London market with the £51.5 million (£436,000 per room) acquisition of Brownís from Raffles, whilst Radisson Edwardian further expanded their presence by paying £115 million (£397,000 per room) for the former InterContinental Mayfair.

Complementing these transactions have been a number of new openings by operators looking to gain a foothold in the London market for example, Malmaison and City Inn. Others, such as Hyatt have opted to undertake management contracts limiting the risks (and rewards) of real-estate ownership.

Conversely the reported difficulties at Queens Moat House and the value of London hotels have influenced the companyís decision to reduce its exposure in the capital, which started with the sale of the Kensington Moat House at the end of 2003 for around £13.5 million (£126,000 per room).

Despite the inherent risks of operating in any market, London still possesses strong fundamentals. According to VisitBritain and the World Tourism Organisation, London captures 50 percent of overseas tourist expenditure in the UK and it is estimated that Londonís international arrivals increased in 2003, for the first time since 1995. This should provide some comfort to hoteliers who have over recent years had to endure some of the most challenging conditions the industry has ever seen.

Notes: All analysis in UK £.

The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,000 hotels and 1.1 million rooms every month. 

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Contact:
HotelBenchmark Survey
Rob Gray
+44 (0) 20 7007 1099
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Also See: The Top Ten Performing International Hotel Markets - Highest Occupancy, Average Room Rate and RevPAR in 2003 / Deloitte / February 2004
Patience, It May Take Until 2006 Before Hotel Performance Levels Seen in 2000 Are Matched Again / Deloitte / January 2004


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