Europe hotel market recovery under threat, Otus warns

EUROPE London-based hotel advisory firm Otus & Co. warns that occupancy rates across Europe could plummet in 2011 and beyond, the result of public sector cuts on hotel demand coupled with a sharp rise in hotel chain room supply over the recession.

In the UK, average public sector cuts of 25% are forecast to reduce UK hotel demand by 2 million room nights in 2011, outweighing the recovery-driven growth in domestic business demand, Otus says. At the same time, domestic leisure demand will be hit by an increase in VAT in January and an expected spike in unemployment.

Short-haul foreign leisure demand will be constrained by similar economic policies across Europe and the savage budget reductions already imposed on Visit Britain, Otus says.

“The recent hotel chain supply growth was put in place in the expectation of conventional economic recovery, while public sector travel and hotel budgets are an easy target for cost cutting when the aim is to maintain front-line services,” says Ian Gamse, director responsible for Otus’ hotel brand database.

The firm predicts that public-sector-induced demand problems will be aggravated by a counter-cyclical 10% rise in chain room supply in Europe during the recession years. Thus, for hotel chains in the UK to maintain the room occupancy achieved in 2006 they will need to sell 17% more room nights in 2012. In Germany, hotels will need to sell 21% more room nights. Even the Olympics and the Queen’s diamond jubilee in 2012 will not compensate in the UK, while Germany has no such events to drive demand.

“The recent hotel chain supply growth is fact. The explicit policies to constrain hotel demand are an unfolding reality,” says Otus Director Paul Slattery. “Without economic policies to boost hotel demand and reduce unemployment, hotel chain room occupancy will struggle over the coming years to exceed 60% in the UK and 55% in Germany. At these levels the recovery of the hotel business will be under threat.”