Hotel Room Rates Climb But How Long Will The Good Times Last?

The strong economic performance of the UK, robust corporate travel demand, minimal discounting of room rates by hoteliers and booming real estate prices will result in further room rate increases this year and in 2008.

Revenue per available room (RevPAR) for luxury hotels in London is forecast to grow by 10.6 per cent this year. Overall for the UK RevPAR is forecast to grow by a less spectacular but still solid 5.5 per cent this year and 5.6 per cent in 2008 taking UK RevPAR levels to £64.16 in 2007 and £67.77 in 2008.

Liz Hall, head of hospitality research and editor of ‘Hospitality Directions Europe,’ PricewaterhouseCoopers LLP, comments:

“The good times will continue through to 2008, but at a slower pace despite a great start to 2007. And with 83.5 per cent hotel occupancy in London, the capital is nearly full.”

PricewaterhouseCoopers forecast is underpinned by strong economic growth with the UK expected to see the strongest growth of the G7 this year at 2.7% and further growth in 2008. This growth is largely driven by corporate spending with consumer spending lagging somewhat.

Robert Milburn, UK hospitality and leisure sector leader, PricewaterhouseCoopers LLP adds:

“Developers and investors are taking advantage of the strong market to introduce new brands and deliver new products. The extended stay product which has been very successful in America is coming to the UK and Europe and we are going to see more international and domestic brands entering the UK market.

“And for the first time in a while we are seeing a high level of new-build activity.

“There is a risk however, that many of these new introductions may hit the market just when the cycle slows and increases in competition and supply in some cities may, in due course, exacerbate a trading slowdown.”

Despite consumer spending concerns, travel and holidays remain an essential lifestyle component for many people and travel demand continues to grow – globally and to the UK. The domestic travel outlook may benefit from calls to holiday at home and a recent report suggests three per cent of people in the UK have given up air travel.

Liz Hall, head of research and editor of ‘Hospitality Directions Europe,’ PricewaterhouseCoopers LLP adds:

“There is a lot of uncertainty across the world and external industry events can impact heavily as we have seen in the past."

“The going will not necessarily be easy. Competition between destinations and hotels is going to get tougher - hotels need to ensure their pricing and service offerings are inline.”

CITY FORECASTS
London had a record year in 2006 driven largely by strong corporate demand, minimal discounting and a 7 per cent increase in foreign visitors. Occupancy levels grew by 8.4 per cent to 82 per cent for 2006. These are expected to hover around 83 per cent in 2007 and 2008, by then getting closer to capacity. Average room rates are anticipated to increase to £121.88 in 2007, racing to £127.97 by 2008. Records could be broken this year as RevPAR passes £100 – the first time ever.

Edinburgh has benefited from Scotland’s mini-tourism boom. In the first nine months of 2006, Scotland saw overseas visitors increase by 14 per cent, almost double the rate of the UK as a whole. On the back of this, Edinburgh is performing strongly with RevPAR growth of 7 per cent in 2006, expected to increase to 4.9 per cent in 2007 and 5 per cent in 2008. This growth will be driven primarily by room rate gains although occupancies will reach almost 80 per cent this year.

Manchester’s previous oversupply issues could become a thing of the past with major events being committed to the city including the Labour Party’s conference in 2008 and 2010, as well as a potential overflow of visitors from the Bollywood Awards 2007 that will be held in Yorkshire. The announcement that Manchester will be the location for the first super casino is likely to further drive hotel demand in the future. We expect RevPAR growth in 2007 of 4.1 per cent and a further 3.4 per cent gain in 2008.

Birmingham generates about £1 billion from conference and event accommodation. It will host the Tory Party conference in 2008 and 2010 as well as one of Europe’s leading sporting events in 2006, the European Athletics Indoor Championships. Last year, Birmingham hotels generated 4.4 per cent RevPAR growth and will see growth of 3.9 per cent in 2007 and 4.2 per cent in 2008.

PROVINCES FORECAST
Depending on location, provincial prospects are expected to be more mixed with RevPAR gains, 5.6 per cent in 2007 and 5.5 per cent in 2008. This growth is largely driven by room rate gains of 4.2 per cent in 2007 and 4.4 per cent in 2008 taking room rates to £73.28. Occupancies are likely to remain around a healthy 72 per cent.

Related Document