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Hotel market outlook - Quarter 4 2010

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Background

Hoteliers in London built upon the strong double-digit revenue per available room (revPAR) growth experienced in Q3 2010 by posting further double-digit growth of 10.6% in Q4 to £112.12. It was average room rates that drove growth in Q4 – rising 10.7% to £136.39 (the highest quarterly rates for 2010) as occupancy remained stagnant at 82.2%. Hotels in Regional UK also performed well, with revPAR up 4.4% to £43.78. Growth was driven almost equally by occupancy and average room rates, each up just over 2%, ending the quarter at 65.7% and £66.65 respectively.

Key findings

  • The Royal wedding in April will no doubt bring more travellers to London although the overall mix for the month is affected by displaced corporate demand
  • Occupancy in London is expected to fall slightly to 80.9%, average room rates are predicted to rise just short of 5% to £131.86. The first half of this year is expected to see the strongest growth in London, with Q2 forecast to post double-digit revPAR growth in excess of 12%
  • The outlook for the regions is more muted than the capital for 2011, with revPAR expected to rise 2.4% by year-end
  • Looking further ahead to 2012, with the London Olympic Games on the horizon, the model predicts revPAR to rise 4.2% in London and 4.0% rise in the regions
  • The current forecast for 2012 however is not as strong as hoteliers might expect given the Olympic Games being held in the capital next summer. However, our research into past Olympic cities reveals that hotel demand in an Olympic year is a very complex mix of highs and lows.

Author's comment

We remain more optimistic on London than the model predicts. The year looks set to reflect some weakness in demand with ADR increases more than enough to offset this as hoteliers raise both corporate and leisure rates.

The outlook for the regions looks fair although here if anything the risk is more on the downside dependent on the strength of the recovery and the resilience of the UK consumer.

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