After the party - UK hotels forecast 2013

 

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For hotels it is all about the environment in which they operate. Hotels thrive in a buoyant economy, full employment, low cost inflation, lots of tourists from overseas and domestic tourists and forward future looking confident consumers.

So what we have got at the moment, we have got a two speed economy in the UK which is reflect in a two speed hotel sector. London healthy and vibrant and the provinces much weaker demand. Let's put it in context, 2011/2010 record years. 2012 we had the diamond Jubilee and we the Olympics, they drove a year of high and lows for London. The highs were a huge boost to rates and during the Olympic period itself but the Olympics also put off a lot of people and hotels had a very difficult June and July. I think after the Olympic party, for 2013 in London we expect a softer year of trading. There is an awful lot of new hotel rooms coming on, room rates are high already so we expect them to fall. Occupancy will be impacted by the new rooms but London has a very healthy profitable hotel sector; it is a global city; we don't expect it to be held back for very long.

The regions are much more diverse and much more dependent on domestic demand. They had a very poor summer and one of the issues they have is that they can't pass on cost pressures in their business and they can't raise room rates. So room revenues are about 10% below where they were in 2007 and that is an issue. Looking towards 2013, we are forecasting a broadly flat year for 2013 but we are very hopeful that hotels have managed to stop the slide in room rate declines.


UK hotels forecast 2013 London and the regions

The UK and other western economies are going through a prolonged period of structural adjustment and relatively low growth and volatility is likely to persist through the mid-2010s.

Against this disappointing backdrop, the London hotel market has demonstrated remarkable resilience. Revenue per room dipped by 5% in 2009, but has since rebounded by 25% to reach a record high. This has been helped by one-off events such as the Olympics, but it also reveals a more fundamental strength: that London’s status as one of leading global cities means it can attract people from all around the world, including those from emerging markets whose economies continue to proper. We do expect a weaker hotel market in 2013, as the inevitable Olympic hangover kicks in. The surge in new supply during 2012 and 2013 may bring down occupancy but we do not expect these temporary factors to hold London back for long.

In the UK regions, the picture is different. Here demand is more dependent on the domestic economy, which has been squeezed by high inflation and the aftermath of the financial crisis. Revenue per room is still 10% below its 2007 level. Despite near 70% occupancy rates, hoteliers have been unable to pass price increases through the market. We expect revenue per room and rates to remain broadly flat in 2013, as they have since 2009.

This two-speed economy – with a healthy London market but much weaker demand in the UK regions – looks set to persist in the “new normal” world.

The impact of supply on London occupancy and rates (1992-2013F) Ups and downs

The impact of supply on London occupancy and rates (1992-2013F)

 

PwC UK hotel forecast 2012 and 2013

 

London

Provinces

UK

 

2012

2013

2012

2013

2012

2013

Occupancy%

80.1%

77.2%

68.9%

68.4%

71.8%

70.7%

ADR (£)

142.68

137.70

58.39

58.45

83.72

82.26

RevPAR (£)

114.71

106.42

40.31

40.02

60.33

58.21

% growth on previous year

Occupancy

-2.4%

-3.6%

-2.8%

-0.7% -

2.7%

-1.6%

ADR

7.2%

-3.5%

0.1%

0.1%

3.6%

-1.7%

RevPAR

4.0%

-7.2%

-2.8%

-0.7%

0.9%

-3.5%

Econometric Forecasts:PwC October 2012
Benchmarking Data:STR Global October 2012