London hotel market remains hot: JLLH

London will continue to far outpace the rest of the European hotel market as the city readies itself for the Olympics and Paralympics taking place this summer, according to Jones Lang LaSalle Hotels (JLLH).

In the first five months of 2012, the London hotel market added 2,000 rooms to its available supply, and RevPAR jumped 3.1% compared to the same period in 2011, according to STR Global. For the remainder of the year, hotel development activity is anticipated to accelerate with an additional 5,000 rooms, bringing supply totals in 2012 to 114,000 rooms, a 6.7% increase year over year, according to AM:PM. 

The London Organising Committee of the Olympic and Paralympic Games (LOCOG) recently released 8,000 unused hotel rooms to the public market, and additional rooms are expected to be released in the coming months. Occupancy in London during July and August usually ranges between 80% and 90%; however, with an estimated 300,000 additional foreign visitors during the Olympic Games, there is expected to be a 60% to 70% increase in ADR compared to the same period in 2011.

Both the budget and the upscale segments are growing, JLLH said. Premier Inn and Travelodge, for example, are adding close to 2,000 additional bedrooms to the existing budget bed stock.

In the upscale segment, the Savoy underwent a £200 million (US$314.2 million) refurbishment that was completed in October 2010, and the Four Seasons Park Lane reopened in January 2011 after a two-year, £125 million (US$196.4 million) refurbishment. This November, the 245-room InterContinental London Westminster and The Wellesley, a 36-suite luxury townhouse hotel in Knightsbridge, are scheduled to open.

Challenges ahead in 2013?

Although London hoteliers could experience a record year in 2012, they may face more challenging market conditions in 2013, JLLH said. An additional 5,400 rooms are scheduled to come online in 2013, reflecting a 4.8% supply increase over 2012. This is a significant increase in supply, as the average yearly supply growth rate was just 2.4% between 2003 and 2011.

“London has proven to be a very resilient market, with hotels posting an annual RevPAR growth of 5.8 percent during the last five years despite a financial and economic crisis in 2008 and 2009,” said Jon Hubbard, EMEA CEO for JLLH. “RevPAR growth is expected to slow in 2013, but remain robust in comparison to other major western European cities.”