In our latest report, Can Hotel ADRs Overcome High Inflation, we tracked the link between ADR growth and inflation over the past 50 years, focusing on hotels in London. This period included times of economic prosperity as well as downturns to help predict what hotel room rates are likely to look like going forward.

The study found that during periods of high consumer price growth, as currently being experienced, hotels are able to raise room rates, effectively passing on rising costs to consumers. On average across the period, daily rates were shown to grow 0.75% above inflation per year, with large jumps in room rates proving acceptable during high inflation and more measured changes during periods of slower growth.

‘Hotels have successfully passed on increases in costs directly to consumers, with ADRs outpacing inflation over the long term,’ said report co-author Shaffer Patrick, associate with HVS London. ‘This tendency held true even during the 1970s when inflation rose from 9% in 1973 to a peak of more than 24% in 1975, effectively shielding hotels from inflationary pressures.’

More recently, while hotel room rates in London took a substantial knock during the pandemic, they have since shown a stronger recovery than following previous economic crises, according to the research. This is partly due to increased consumer demand prompted by two years without spending on commuting, dining out and travel; the fact consumers have higher levels of savings because of the lockdowns; and consumers’ willingness to spend on holiday packages to make up for missed travel.

‘Current staff shortages in the sector have also helped lift ADRs as many of London’s hotels have taken rooms off-sale, reducing occupancy and thus driving room rates. Overall, this blend of forces has driven the fastest average rate recovery of any major recession in the UK in the past 50 years,’ added Shaffer Patrick.

‘Going forward we expect that a number of London hotels will be able to retain the ADR uplift they have gained during 2022 and to mostly compensate for inflation in their 2023 pricing strategies. ADR is likely to continue to grow ahead of inflation, broadly protecting margins and maintaining the trend of the last few decades,’ observed report co-author Sophie Perret, senior director, HVS London. ‘If the UK, or its main feeder markets, go into a recession this may well change in the short-term, but the longer-term outlook for average rate in London’s hotels remains positive.’

You can download a copy of the report here.

About HVS

HVS is the world's leading consulting and valuation services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 4,500 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of over 50 offices staffed by 300 experienced industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com.