UNITED KINGDOM Tough market conditions will continue to constrain growth for hotels throughout the United Kingdom in 2011, although the story is much different in London, where already strong metrics are expected to continue improving, TRI Hospitality Consulting predicts.
For provincial hotels, the falling profitability of the last two years is expected to moderate significantly in 2010 and be flat in 2011. “Despite some dire forecasts at the start of this recession, the UK hotel industry has proved itself resilient, with London exhibiting extraordinary strength,” says TRI Managing Director Jonathan Langston. “Even though the recovery remains uncertain we expect hotels across the country to show stability and be poised for modest growth next year.”
Despite some significant obstacles to trading during the beginning of this year, including severe winter weather disrupting much commercial and leisure travel, UK provincial full-service hotel RevPAR performance has remained relatively stable since May. TRI forecasts UK provincial full-service hotel occupancy to finish 2010 up 1.7 percentage points from 2009, in combination with a rate decline of 1.5% from 2009 levels. This volume-over-rate strategy will result in a 1% increase in RevPAR.
“Data from our HotStats database indicates that the small recovery in rooms RevPAR performance has been volume-led, and we have seen a pick-up in transient corporate demand,” Langston says. “Leisure demand has remained stable in 2010 on 2009 levels, albeit suffering a small drop in achieved leisure sector rates, which we consider a portent for 2011 trading.”
While provincial RevPAR is forecast to increase, total revenue per available room (TrevPAR) and gross operating profit per available room (GOPPAR) performance is forecast to decline by 0.7% and 2.6%, respectively. “We interpret the decline in 2010 TrevPAR performance as a result of the leisure market having tightened their travel budgets, combined with prudent behavior of corporate travel buyers; this is likely to continue for some time,” Langston says. “Although provincial hoteliers implemented significant cost saving strategies in the second half of 2009, 2010 TrevPAR and GOPPAR performance is forecast to finish the year below the level of 2009 performance.”
For 2011, TRI forecasts no growth in provincial market occupancy and ADR performance.
The leisure market for full-service hotels is set to become more competitive as the increase in VAT and public sector cuts affecting employment levels will mount additional pressure on this segment. In addition, the increasing competition from the budget hotel sector is likely to force full-service hotels to further reduce leisure tariffs in order to protect volume.
“Whilst the value of leisure demand is forecast to decrease, we are seeing midweek transient corporate demand levels increasing, with many provincial city markets experiencing near-to-full midweek occupancy levels. We believe that there will be some, albeit small, rate growth during these midweek periods. These small gains in commercial rates are likely to balance off the loss in the value of leisure demand,” Langston says.
With no movement in RevPAR performance, TRI forecasts little movement in provincial hotels’ TrevPAR and GOPPAR performance. “2011 will be a year for provincial hotels to stabilize financial performance amidst continued challenging market conditions,” Langston says.
London continues relatively robust performance
So far in 2010, London hotel market performance has been robust as London hoteliers have experienced significant growth in RevPAR, TrevPAR and GOPPAR performance.
“In 2010, London hoteliers responded rapidly to the increase in corporate demand from the low point of 2009. The corporate market commands a superior sector rate to the leisure market, and we are seeing London full-service hoteliers shed lower-rated leisure business, a market which was relied upon to replace the loss in commercial demand in 2009, as rack and corporate demand continues to grow,” Langston says.
For 2010, TRI forecasts London full-service hotel occupancy to finish the year up 1.7 percentage points from 2009, and ADR to increase by 6.5% from 2009, resulting in an 8.8% increase in RevPAR. London’s TrevPAR and GOPPAR is forecast to increase 6.7% and 11.4%, respectively, for full year 2010 compared to last year.
“The ability of London hoteliers to maintain the cost base as market demand returned has meant that GOPPAR performance soared in 2010, with the increase in RevPAR being fed right down to the bottom line according to our HotStats survey,” Langston says. For 2011, the London hotel market is forecast to continue to increase occupancy by 1 percentage point and ADR performance by 2.2%.
Commercial markets are returning, but continuing global economic uncertainty is likely to limit growth levels next year. Combined with the strengthening of sterling against the dollar and the euro, London will present as a more expensive destination to key U.S. and Europe markets, limiting the scope for London hoteliers to increase rates to the leisure sector.
For 2011, London hotel market TRevPAR and GOPPAR is forecast to increase 4.3% and 5%, respectively, on 2010 performance levels. “We expect London hotels to continue their strategy of attracting a greater proportion of higher-rated commercial demand although the rate of growth in demand from this sector will inevitably be lower than the considerable growth achieved in 2010 performance. Given the fact that hoteliers appear to be operating at optimal efficiency and towards capacity occupancies, any increase in RevPAR performance will continue to drop down to gross operating profit, as experienced in 2010,” Langston says.