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Hotel market outlook - Quarter 3 2010

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Background

With GDP expected to rise to a mere 1.3% next year, VAT increasing to 20% on 1 January and retailers expecting more challenging operating conditions the outlook for hotels will be a challenging one, especially for hotels in the capital. On the positive side, the advent of a Royal wedding and a weaker pound against the dollar will no doubt bring more US travellers to London. While the econometric model is predicting a 2.2% rise in revPAR for London next year, and 4.4% growth in Regional UK, we are more optimistic on London and would expect the capital’s revPAR to post a healthier growth than predicted by STR Global Forecasts. With future demand for hotel rooms in both London and the Regions beginning to weaken, caution may well be the buzz word for next year. It is interesting to note however that both models predict a strong start to 2011 before a slowdown in the second half of the year.

Key findings

  • As we approach the end of 2010, the short-term outlook for the capital looks guaranteed, perhaps. With the occupancy outlook now looking more realistic, revPAR is now expected to achieve a 10.4% rise in Q4. With October and November both reporting double-digit increases in revPAR, the Q4 forecasts seem assured. However, the recent “big freeze” may take some gloss off the overall outcome.
  • With Q3 in the bag and an expectation that Q4 will also see double-digit growth, year-end 2010 predictions moved back to where they have been for most of the year; revPAR is now expected to rise 11.4% to £103.72. Although the model is currently predicting a 2.2% rise in revPAR for 2011, we expect further revisions to the model’s predictions which are outlined in the ‘authors comment’ below.
  • The year-end 2010 outlook for Regional UK produced before the winter snap forecasts revPAR to rise 5.1% to £44.95, with occupancy being the key driver of growth. Looking further ahead to 2011, the outlook is expected to remain relatively similar to what was reported in the last report, with average room rates driving growth, rising 3.0% to £67.58. Occupancy will fall back slightly and is expected to rise to just short of 70%.

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