The Olympics: Good or bad for London hotels?

There's no greater prize for any city than winning the honour of hosting the Olympics Games and Paralympic Games. The Games are the world's greatest show, they are watched by a TV audience of some four billion, while hundreds of thousands of visitors will come to a city just for the Games. There is no doubting the short-term benefits for hoteliers, all these visitors need to stay somewhere, but what of the longer term?

Any host city must be able to absorb the Olympic facilities once the Games have finished. Hotels in particular are especially vulnerable. Large amounts of over-capacity in the years following the Games could be as financially damaging to hotels as under-capacity during the Games. Could London's dream of hosting the Games turn into a nightmare of empty hotels and low room rate once the medals have been awarded? The answer must emphatically be a no.

The current picture

The current hotel room capacity in London is already well in excess of the IOC's requirements. There are around 100,000 hotel rooms currently available in the capital, together with an estimated 30,000 extra non-serviced rooms. This is more hotel accommodation than Athens or Sydney, and means that London could, quite easily, cope with the huge influx of Olympic visitors without the need for large amounts of extra capacity. In addition, London 2012 has already negotiated fixed price contracts with a significant number of hotels, while Londoners would also be invited to host athletes' families in a homestay programme.

Over and above these numbers, a further 17,000 rooms are also likely to come on stream over the next seven years. These rooms are likely to be built even if London does not win the right to host the 2012 Games. They are, in most cases, already well advanced with planning permissions and operators in place. They include large leisure developments at Wembley, Battersea Power Station and the Millennium Dome, as well as wider regeneration schemes at Stratford, Elephant & Castle and Kings Cross.

New hotels planned for London 2005-2012

Source: Visit London: London Hotel Development Monitor

The enduring appeal of London

The London hotel market has always been appealing to operators due to the large number of visitors the city attracts. The capital is the world's most popular city destination and annually hosts some 27m overnight visitors. Winning the rights to host the 2012 Games should further boost this healthy flow of visitors, and ensure London hotels thrive once the Games have finished.

There is an assumption that the Games increases tourism because of improved awareness generated compared with other destinations. However, sometimes a high level of attention focused on a city during the Games can quickly dissipate, along with tourism levels, after the Games have finished. Also the Olympics Games itself can also cause 'normal' visitors to go elsewhere during the year of the Games due to fears of overcrowding and high prices.

These fears are well grounded. Historical data suggests that while demand for accommodation rockets during the Games, it quickly drops away afterwards. With the exception of Atlanta, all the recent host cities have reported a sharp decline in occupancy rates after the Games have finished. In the extreme cases of Lillehammer and Barcelona, the huge increase in new supply caused the local hotel markets to collapse. Could this happen to London?

Conference call

The business visitor market is key to avoiding this problem. The Games does not only generate a short-term fillip to the leisure market, they also stimulate the meetings, convention and exhibition sectors, both before and after the Games. Fringe meetings of the Olympic family are now almost as big as the Games themselves. London's ability to host an Olympics will be seen as a major selling point in confirming the city's ability to accommodate large international meetings.

Sydney and Barcelona in particular recognised the importance of this market. Both cities have been very successful in leveraging the Games and its facilities to win highly lucrative meeting and convention business.

According to its local tourist board, Sydney has won 34% more events than would have been the case if Sydney had not been selected to host the Games. Moreover, Barcelona has recorded a 64% increase in convention business since 1996, and now hosts some 700 large conferences a year. As the Director of the Sydney Convention Visitors Bureau put it 'I tell them that if we can host an Olympic Games, we can host anything'.

International meetings in Barcelona & Sydney 1990-2003

Source: Union of International Associations

There are huge opportunities for London in this area. The capital's excellent financial and transport links makes the city a natural selection for international meetings. Moreover, with the Mayoral Commission into the feasibility of developing an International Convention Centre in London likely to recommend the go ahead, London could have a large purpose built convention centre ready for after the Games.

An International Convention Centre is not the only new potential venue. London would gain five permanent new world class sporting venues through a 2012 Games, including an aquatics centre, athletics stadium and VeloPark in the proposed Olympic Park in East London. These venues would be set to attract national and international sporting competitions and events before and after the Games, again boosting the hotel market.

Win or Lose

Winning the right to host the 2012 Games will bring huge direct benefits as well as longer term gains for London hoteliers. If London follows the Sydney and Barcelona examples, it can look forward to a significant short-term boost in leisure tourism, as well as a long-term boost to business tourism. Even if London does not win, the momentum gained through bidding is acting as a catalyst around which the city is renewing itself. Large parts of London are now being regenerated, while long overdue transport projects are now beginning to be constructed. Win or lose, the Games will bring a lasting legacy for the London hotel market.

This article was written by Jamie Talmage, VisitLondon, for PKF's Hotel Britain publication.