PricewaterhouseCoopers predicts record-breaking 2006 for UK hotel RevPAR

Following three of the most difficult years for hoteliers, a new report from PricewaterhouseCoopers Hospitality and Leisure Group suggests 2006 may prove to be a record year for UK Revenue Per Available Room (RevPAR) – the key industry metric.

The release of three years’ pent up demand for international travel continues to drive tourism volumes upwards and hotel operators are benefiting from the return of the business traveller. Hotel performance, particularly room rates, is continuing to strengthen steadily - hotels are filling up mid-week, raising average prices as more rooms are sold on days when rates are higher. This latest forecast is underpinned by favourable global macroeconomic conditions that continue to support the recovery in business and holiday travel. There has been a slight weakening of the core macroeconomic figures since PricewatehrouseCoopers last forecast in November 2004, but relatively strong UK GDP growth continues (albeit at a lower rate than that seen last year). The trend in growth could, however, be disrupted by the risks posed by a less favourable international environment.

The forecast, produced as part of PricewaterhouseCoopers regular Hospitality Directions Europe journal, forecasts 8.2 % RevPAR growth in the UK and 8.7% growth London in 2005, with the Provinces trailing slightly at 6.9 %. The slight weakening of the core macroeconomic drivers led to a small downward adjustment in the firm’s current Forecast but overall it differs very little from November 2004. Three years’ solid growth in room rates with reasonable occupancy gains means that in 2006 the UK hotel sector (with a sustained travel recovery and a stable economy) is set to break new records.

UK occupancies should continue to rise to just over 77.5 % (higher than the previous peak of 76% in 1997) and Average Daily Room (ADR) growth of 4.5 % (to £76.49) means RevPAR growth of 7.7% will take RevPAR to £59.26 – the highest recorded. London hotels’ performance is expected to continue to be robust but the capital fell further in the past three years, and now has a slower and steeper climb ahead to regain its previous peak.

Despite this encouraging growth forecast and improving operating environment, further analysis by PricewaterhouseCoopers Hospitality and Leisure Group shows that the hotel sector is working very hard to achieve real gains and, if an allowance is made for inflation, then the UK’s real RevPAR rate (stripped of inflation) will still have some way to go to reach even its 1998 peak.

Between 1994 and 1998 real RevPAR compound annual growth (CAGR) was 10.5 %. PricewaterhouseCooeprs latest forecast for UK RevPAR growth for 2004-2006 equates to a CAGR of 5.2 %. For London the climb-back is going to be even harder.

Robert Milburn, UK Leader for Hospitality and Leisure at PricewaterhouseCoopers, said:

"This latest forecast supports the view that the key fundamentals are in place for a period of sustained future growth in the UK hotel market. The improved trading environment is already reflected in higher sales and profits for many operators. However, it is important to recognise that in the longer term the real winners will be those companies who find a way successfully to embrace the new era of pricing transparency available to the consumer through internet distribution channels.”

Notes:

• Revenue per available room (RevPAR) – is a key performance metric used in the hotel industry which reflects demand. It is calculated by multiplying a hotel’s average daily rate (ADR) by it occupancy rate.
• Hospitality Directions Forecast Alert – March 2005 is available electronically by subscription only (£190 per annum – includes biannual publication plus two updates). Copies for the media are available from Semi Da-Cocodia, PricewaterhouseCoopers on +44 (0) 207 804 2189 or [email protected] . Please direct all other queries to Victoria Heaver on 0207 212 3467 or [email protected] . The report also charts the following hotel statistics for the UK, London and the Provinces.
• Launched in January 2000, PricewaterhouseCoopers Hospitality Directions – Europe Edition is a biannual research journal, with quarterly forecast updates, offering original research on the European hotel industry. The journal draws on economic modelling skills and industry knowledge of PricewaterhouseCoopers.