Key points
- Record RevPAR expected in London in 2014 along with stronger pricing
- Signs of stabilisation in the regions, with the best ADR growth in 2014 since 2008
- The conference and meeting market remains unsettled
- Upscale/four star hotels have some strong and attractive brands and have outperformed the market in general around the country and in London
- Budget chains add more rooms, enticing more business travellers
London
It has been a volatile 2013 so far for London hoteliers, according to new PwC analysis, with weak pricing and tough comparisons with last year’s Olympics in Q3. Occupancy rates remain high at around 81%, and should creep back up to 82% in 2014.
In London, PwC forecast a 2.3% fall in Average Daily Rate (ADR) in 2013 and anticipate modest ADR growth of 1.5% next year taking rates to £138.19, only one pound below 2012’s record level (in nominal terms) but six pounds behind in real terms (2012 prices). PwC anticipate a 2.4% gain in London Revenue Per Available Room (RevPAR) in 2014 to take it to £112.80, another record in nominal terms.
Liz Hall, head of hospitality and leisure research at PwC, and author of the PwC UK hotels forecast 2014, said:
“A return to some kind of ‘normal’ in 2014 will be welcomed after 2013’s post-Olympic correction. London has struggled this year but stronger pricing in 2014 and record RevPAR are expected. It looks like Occupancy, ADR and RevPAR are heading in one direction, with the right kind growth to put London back on its upward trajectory. ”
Regions – signs of stabilisation with trading looking up
The regions show signs of business stabilising and occupancies remain high by historical standards.
So far, 2013 has seen only one month of occupancy decline (in January). PwC expects ADR to reach almost £60 in 2014, still below the 2008 peak, even in nominal terms, but the best result since 2009. PwC expect 1.8% RevPAR growth in the regions in 2014, taking RevPAR to £42.44, again the best result since 2008.
Liz Hall commented:
“The UK is already on a recovery track but growth is likely to be slow by historical standards. Across the UK, there are still continuing pressures on room rates. This is unlikely to change as consumers push back, book late in the hope of a bargain, and use the pricing transparency of the internet to help them make a choice. Short lead times, a push for added value and the attitude that a better deal is to be had through booking late looks likely to continue.”
More challenges ahead for the meeting and conferences market
The conference and meeting market remains unsettled. It is an important driver of demand and food and beverage spend for hotels, but the outlook is far from fully recovered. Demand remains polarized and price aware, with residential meetings under buyer scrutiny.
Liz Hall said:
“The meetings and conference market faces another challenging year, and is often the last demand segment to recover. More supply and changes to corporate procurement policies and sustainability issues around travel and communications technology are still leaving their mark. Shorter lead times, shorter meetings (more day and half day events), and clients wanting more for less and in less time, are also trends.”
How have budget, upscale and luxury fared? Tough comparisons
New brands, products and revamped existing products continue to open and a further 19,500 rooms will open in the remainder of 2013 and during 2014, according to data from AM: PM Hotels Database. A high proportion of these new rooms will be in the budget segment, adding to an already competitive market.
Liz Hall, head of hospitality and leisure research at PwC, said:
“While this level of increase is below recent growth, London continues to see high rates of new supply. It’s no wonder prices and independent operators are feeling the heat with this increase in supply, especially as a large chunk is in the budget segment.
“Recent research from BDRC Continental shows budget operators Premier Inn and Travelodge are now the top two players in both the business and the leisure travel segments – the first time this has been recorded.”
The upscale or four star segment has performed particularly well in the first half of this year and has some attractive brands. Upscale segments have seen lower supply growth in the first half of this year than some other segments. In London, the luxury segment has seen ADR growth but occupancy declines while the economy segment saw quite the reverse.
Cautiously upbeat, but increasingly optimistic
Robert Milburn, head of hotels at PwC, concluded:
“We remain cautiously upbeat, but increasingly optimistic, on the outlook of the UK hotel market. Historically there has been a close relationship between RevPAR and GDP growth, so a sustained recovery in GDP should lead to increased levels of room demand and revenue growth in the following years.
“While it’s early days for an economic recovery, GDP growth is good news for hotel revenues. But it remains a difficult trading environment as costs increase, and more supply put margins under pressure.”
The PwC hotels forecast
The forecast is based on a quarterly econometric analysis of the hotel sector, using an updated PwC macroeconomic forecast released in September and historical statistics supplied by STR Global and other data providers. PwC expects real gross domestic product to increase by around 1.3 per cent in 2013, and then accelerate to a growth of around 2.3 per cent in 2014.
Data sources: STR Global; AM:PM Hotel Database (supply), August 2013
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