London hotel market recovery set to continue despite Omicron setbacks
- October marked the turning point for London’s hotel market since the start of the pandemic
- London’s luxury hotels outperform the market, though Omicron likely to slow recovery
- Despite increased VAT, London hotels delivered highest level of profitability since the start of the pandemic, with uplift in travel boosting demand
The recovery of the London hotel sector steadily continued throughout October with occupancy rising 2.6% to 48.2%. Knight Frank data shows steady gains in hotel occupancy with month-on-month profitability improving by 37%, marking the highest profitability levels London has achieved since the outbreak of coronavirus in early 2020.
Despite the increase in VAT, London continued to deliver its highest level of profitability since the start of the pandemic, with October showing London’s luxury hotels outperforming the market, recording a 22.7% increase in revenue per available room. London’s luxury hotels consolidated their impressive revenue performance with equally strong gross operating profit per available room increasing by 23%.
Wider hotel demand showed to have been boosted by an uplift in overseas visitors, which supported the ability of London hotels to withstand the 7.5% increase in VAT, with average daily rent for the London-wide market recording 6.6% growth in October – rising to £193.
Rising utility costs and Omicron pose short-term challenges to recovery
Although the short-term outlook for the hotel sector remains opaque, with Omicron likely to reduce international travel as well as festive and corporate events, there still remains hope for a strong recovery in 2022.
Opportunity exists for hotels in strong leisure destinations to seize upon renewed demand for short-stay, staycations over the festive period, so long as no new restrictions to domestic travel are imposed. Whilst traditional festive party nights have been cancelled or shelved for a second consecutive year, the potential to fill room nights and replace lost revenues from high spending leisure guests, willing to pay more for a quality and reputable hotel stay, is substantial.
Trading data reveals that utility costs for the regional UK hotel market increased by 19.5% for the month of October and by 8.6% in London. Making use of technology to help achieve efficiencies and reduce utility costs will become essential if energy costs remain at this level or rise further in 2022.
Philippa Goldstein, Senior Analyst in Hotels & Leisure at Knight Frank, commented: “The London hotel market is presented with new challenges as it faces the Omicron wave of the coronavirus pandemic. However, our research shows many reasons for optimism for the sector’s resilience and recovery looking forward into 2022. Quality leisure spaces for both domestic and international travellers will always be in demand, if the sector can stay nimble and creative in the face of the short-term complications such as Omicron, utility costs and supply chain issues, the sector is on track to continue on its trajectory to recovery in 2022.“
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