TRI Hospitality Consulting -2010 & 2011 UK Hotel Market Forecasts

• Industry first as TRI Hospitality Consulting presents GOPPAR (gross operating profit per available room) and TrevPAR (total revenue per available room) forecasts for the UK Hotel Industry.
• London hotels are forecast to enjoy increasing profitability during 2010 according to industry experts TRI Hospitality Consulting.
• While hotels in the UK provinces will see a slight dip in profitability during 2010, they will accelerate to almost double digit growth in 2011.
• Both sets of forecasts derived from TRI Hospitality Consulting’s unique HotStats database which tracks hotel revenue, cost and profit performance.
• In addition, TRI Hospitality Consulting has produced forecasts for room rate and occupancy as it has done in previous years.

“Our research indicates that there is a close relationship between movements in rooms revenue performance and total revenue performance for both UK provincial and London hotels. However, our analysis also indicates that London hoteliers have the ability to adjust fixed costs more quickly in response to changes in revenue performance, whereas provincial hotels have been less able to mitigate falls in revenue with cost reduction” said Jonathan Langston, managing director, TRI Hospitality Consulting.

In 2010, achieved TrevPAR and GOPPAR performance in the provinces is forecast to decrease by 2.0 per cent and 3.2 per cent respectively, with an increase in TrevPAR and GOPPAR projected for 2011, of 4.0 and 9.1 per cent on 2010, as the provinces start the process of recovery. Just as the gearing effect of fixed costs caused large falls in 2009, so it will produce growth in 2011.

For the London hotel market, TRI forecasts a 2.8 per cent increase in TrevPAR and 3.5 per cent increase in GOPPAR in 2010. In 2011, TRI forecasts an increase in TrevPAR of 4.8 per cent and GOPPAR of 7.0 per cent on 2010, based on the belief that London hoteliers will be able to continue to capitalise on increases in TrevPAR performance on a more tightly controlled cost base and enhanced profitability.

UK Provinces

2010 will be a tough year for provincial hoteliers as domestic consumers restrict spending according to the latest forecasts from TRI Hospitality Consulting.

The increase in VAT, rising unemployment and virtually inevitable stringent government spending policy (post-election) are expected to reduce the domestic consumer’s spending power. It is likely that in 2010, provincial hotels will experience pressure for further rate reduction from the leisure market in order to maintain domestic demand in this sector, with a particular focus likely to be on lower-rated business, such as group tours.

TRI anticipates demand from commercial-related markets to be similar to 2009 levels, as businesses seek to consolidate their position in the current economic climate.

“Historically, the UK provincial hotel market has experienced a lag in recovery, relative to GDP recovery. It is likely that corporates will continue to operate on tight accommodation/travel budgets, with little or no scope for hoteliers in the provinces to enhance rate to the commercial sector” commented Langston.

For 2010 TRI forecasts occupancy to stabilise, up just 0.1 percentage points from 2009, in combination with continued rate decline, of 1.6 per cent, from 2009 levels. The view that hoteliers will continue to reduce rate in order to maintain occupancy in the provinces results in a 1.4 per cent reduction in RevPAR.

For 2011, TRI forecasts RevPAR recovery to begin, but at a slow rate. Demand levels will increase, but average room rate recovery will be a gradual process, and a forecast of three per cent growth in RevPAR in 2011 is driven in most part by the 1.9 percentage point increase in occupancy on 2010 forecast.

London Forecast

In 2009, leisure-related demand from Europe effectively replaced the dramatic losses in commercial demand. Visit Britain forecasts a 0.8 per cent increase in inbound visitor figures this year, and TRI has assumed that leisure demand will remain robust in 2010, relative to 2009 levels, predicated on Sterling remaining weak throughout 2010.

Growth forecasts for UK GDP are between 1.0 and 1.5 per cent in 2010, which suggests a slow recovery. That said, London is a world-renowned business destination, and TRI expects some pick-up in demand from this sector, particularly considering that in the first three quarters of 2009 businesses dramatically reduced accommodation/travel spend to London in light of the recession.

“In November and December 2009, the London full-service hotel market recorded RevPAR growth as the rebound effect from the credit crunch and recession began to gain momentum” said Langston.

Overall, TRI forecasts the London hotel market to increase RevPAR by 2.5 per cent in 2010, primarily due to an increase in international commercial demand with leisure demand levels remaining similar to 2009. Based on this rationale occupancy is forecast to increase by 1.5 percentage points. In 2010, TRI also foresees minimal scope for London hotels to enhance rate with a 0.6 per cent post-recession increase, as hoteliers

will focus on enhancing occupancy levels.

For 2011, TRI projects greater RevPAR growth, equivalent to 3.4 per cent on our 2010 forecast. This is underpinned by a continued increase in commercial demand levels, which will enable London hoteliers to optimise on higher rated business from 2009/10 levels, as the UK and overseas demand generating economies start to exhibit greater levels of growth. TRI forecasts an increase in room occupancy of 0.7 percentage points and 2.6 per cent rate growth on the predicted 2010 outturn.

The forecasts are predicated on the assumption that:

• UK GDP growth will be between one and 1.5 per cent in 2010, and two and 2.5 per cent in 2011.
• Sterling will remain weak relative to the US Dollar and Euro currencies.
• Utility costs relative to hotel revnues will remain at similar levels to 2009.

Jonathan Langston
+44 (0)20 7892 2201
HotStats Limited