Hotels forecast 2014 and 2015 Spotlight on London

We have high hopes for London as strong demand drives up ADR. We forecast almost 4% growth for RevPAR in 2014 as rates and occupancy hit new highs. Further records are expected to be broken in 2015.

2013 recap: While the London market saw a poor start to 2013, ADR strengthened as the year went on, assisted by some strong overseas tourism visitation levels, and despite more new supply (albeit more muted than of late), occupancy remained high, averaging 82% in 2013. Overall 2013 saw a 1.6% decline in ADR but a 2.2% advance in occupancy resulting in a 0.6% gain in RevPAR, according to data from STR Global. A comparison to 2011 (the last 'normal' year before the Olympics) shows that, despite strong supply growth, performance metrics have generally remained stable or improved, which is quite an achievement.

2014 and 2015 expectations:

• Strong market fundamentals – occupancy is expected to stay high and rates to see more growth
• Stimulus to business and leisure prospects as GDP recovery Strengthens

In our European cities hotel forecast ranking of 18 gateway cities across Europe, London is set to see the highest occupancies in 2014 and top the RevPAR growth table in 2015.

Latest supply trends

After 11, 000 new rooms opened in 2011 and 2012 London saw a post Olympics supply slowdown in 2013. Supply is set to rise again by around 5% in 2014 and again in 2015 when we will see above average growth as over 12,000 new rooms open. According to AM PM Hotels, about half these rooms will be in the budget sector.

Economic outlook

London continues to be buoyant with the economy doing significantly better than the rest of the UK. The capital attracts a growing number of tourists and property prices and consumer spending continue to outperform the rest of the country. Unemployment in the UK is expected to decline, and GDP growth is expected to be around 2.5% in 2014 and 2.4% in 2015.

Opportunities

With an improving economy and overseas tourism forecast to be keep growing in 2014, the year should see strong hotel trading trends with a positive impact on hotel values. London remains at the forefront of major deals with high prices still being achieved. But further supply additions could depress ADR in trough periods. There remain opportunities for new build, renovation, rebranding and operational enhancement for those with the cash and skills to invest.