London Market Report
Trends in Hotel Market Performance
According to data provided by STR Global, London Upscale hoteliers witnessed an overall ARR increase of 5% and a decrease of 3.4 pts in occupancy during 2008.
As can be observed from the graph above, after a difficult January, occupancy has managed to hold up at the expense of rate and has shown a slight increase during April and May in comparison to the same period last year. However, the sharp decline in ARR has caused a decrease of almost 10% in RevPAR and, year to May 2009 RevPAR figures are not only below those recorded in 2008 but also below 2007 figures. Preliminary figures for June show a year on year RevPAR decline of 9.7%, steeper than any other month this year with the exception of January.
The current economic climate, which has forced business travellers and tourists to seek more affordable accommodation, has resulted in the strong decline in rates. In fact, an EIU survey analysing the effect of the economic downturn on executives’ choice of hotel, revealed that 47% of the executives expect to take fewer trips during 2009, and 28% expect to downgrade from 4 and 5-star hotels. In addition, 63% of respondents expected their companies to use the economic downturn to their advantage to try to negotiate lower rates.
Trends in Hotel Supply
The London upscale segment has seen limited growth in hotel supply over the last 18 months with only two new branded hotels entering the market. The Andaz Hotel in Liverpool Street reopened its doors having undergone a full refurbishment at the end of 2007, while in January this year, the Sanctum Soho Hotel opened offering 30 individually designed bedrooms. Furthermore, The Bentley Hotel was rebranded as a Waldorf Astoria Collection Hotel in March with only minimum refurbishment required for the rebranding.
Despite this limited growth, the upscale segment has seen a number of hotels reopen following completion of refurbishment programmes to be carried out. During the second half of 2008, the St James’s Hotel & Club and The Connaught opened after a full refurbishment. The Kensington Hotel reopened this March, whilst the Langham Hotel had its re-launch party in June. There are currently, a number of other hotels closed for full refurbishment representing some 850 rooms. These include the Montcalm Hotel and The Savoy, which are due to open later this year, the Four Seasons Park Lane and The Berners, both due to reopen during 2010.
The London pipeline for 2009 calls for the opening of approximately 2,000 hotel rooms across the city, which will no doubt putting further pressure on rates across all sectors. In terms of upscale developments, there are at least 11 projects scheduled to open between 2010 and 2012 representing in excess of 2,000 rooms. Some of the more notable anticipated openings include: the Silken Hotel (170 rooms) which was expected to open in 2009 but is now rumoured to be on hold, 45 Park Lane to be operated by the Dorchester Collection with 50 rooms due to open early 2010; the W Hotel Leicester Square (194 rooms) to open mid 2010; Corinthia Hotels will convert the recently acquired Metropole Building to offer 300 bedrooms as from late 2010; the Shangri-La London (195 rooms) located near London Bridge opening late 2012; a Hotel at Trinity Square with 121 rooms; and the Jumeirah No1 in Blackfriars with 261 rooms. It is worth mentioning that the Poultry scheme, a proposed 181-bedroom luxury hotel, has now been placed into administration and the site is currently being marketed. Finally, Heron International has agreed terms with luxury hotel chain Four Seasons to develop a hotel (subject to planning consent being granted) as part of its Heron Plaza in the City of London.
Trends in Hotel Transactions
During the past 18 months there has been a reduction in the number of transactions featuring London upscale hotels. In 2008, a total of seven transactions (four trading hotels and three sites) representing approximately 1,200 bedrooms were recorded for a total value in excess of £620m. The trading hotels were The Waldorf Hilton in Covent Garden, the Pelham Hotel in South Kensington, the Crowne Plaza Blackfriars and the Montcalm Hotel in Marylebone; the sites purchased were the Café Royal in Regent St, the Metropole Building in White Hall Place and a site in Aldwych for a proposed Silken Hotel. The Waldorf Hilton London recorded the highest price per available room at approximately £620,000.
The Le Meridien Piccadilly sale, which was scheduled to exchange hands earlier this year for approximately £67m, fell through at the last minute. In addition, the following luxury hotels are currently for sale: the Stafford Hotel in Mayfair for an estimated asking price of £80m, Claridge’s for an asking price of £600m and The Berkley for £400m.
The second half of 2009 will continue to feel the effects of the current economic climate, with continued pressure on occupancy and more so, rates. The longer trading performance remains depressed the more likely a reversion to the average rate ‘dumping’ witnessed in previous recessions becomes. This might potentially put at risk the image of exclusivity that many of the assets in this market segment enjoy.
Any meaningful recovery is unlikely to materialise until 2010 at the earliest and when it arrives is expected to be moderate. For the upscale sector in particular, the corporate segment will be a determining factor in any recovery. This will need to be supported by high-spending international leisure guests, some of which may see London as a slightly more affordable destination given the softening of the pound against many other currencies.
On a more positive note, there are have been some tentative signs of an economic stabilisation and the Olympic Games will certainly positively impact London in the mid to long term.
Konstanze Auernheimer (STR Global)
Director of Marketing
Phone: +44 (0)207 922 1961
About STR Global
STR Global provides clients—including hotel operators, developers, financiers, analysts and suppliers to thehotel industry—access to hotel research with regular and custom reports covering Europe, Middle East, Africa, Asia Pacific and South America. STR Global provides a single source of global hotel data covering daily and monthly performance data, segmentation data, forecasts, annual profitability, pipeline and census information. Hotel operators can join the surveys on a complimentary basis and benefit from free industry data. STR Global is part of the STR family of companies and is proudly associated with STR, STR Analytics and Hotel News Now. For more information, please visit www.strglobal.com.