According to research by PwC, the once-in-a-lifetime events including the London 2012 Olympics and the Queen’s Diamond Jubilee helped to drive revenue per available room (RevPAR) by four per cent to a record £114.71 this year.
But that RevPAR is expected to fall back by seven per cent to £106.42 in 2013 as supply issues, the weak economy and an ‘Olympics hangover’ all take their toll.
Liz Hall, head of hospitality and leisure research at PwC, and author of the PwC UK hotels forecast for 2013, said: “The London hotel market has demonstrated remarkable resilience since the start of the recession.
“This has been helped by one-off events such as the Queen’s Diamond Jubilee and the London 2012 Olympics, which have driven some highs and lows (reduced business travel) this year.
Winners & losers
“It’s hard to feel confident about 2013; there will be winners but a weak economic and travel environment, a fight for market share and more new rooms to fill mean many will feel the hit.”
This growing fear of the looming, so-called 'Empty 2013' follow a key measure of business confidence, which reported another steep drop in positivity. The BDO Optimism Index fell to 89.1 in August from 93.1 in July - a score of 95 would indicate an expectation of a return to growth.
And at a recent event debating the impact of the London 2012 Olympics on the hotel industry and what good any 'legacy' might bring hoteliers, Ruth Mortimer - editor of Marketing Week - said there was a growing view among marketing and business leaders that next year would be very different to operate in without the big tourist and sporting events of 2012.
The PwC report goes on to reveal that 2012 saw the UK’s largest room supply increase from new developments in the past decade, with the Olympics catalysing development on a scale unlikely to been again. The capital is likely to see supply growth of around seven per cent in 2012 (over 8,000 new rooms) and 3.8 per cent in 2013 (4900 new rooms).
In the regions
Robert Milburn, hospitality & leisure leader at PwC, added: “Supply growth is driven by high occupancies and ADR, and may result in a period of adjustment while new supply is absorbed. Brands in the right location and with a relevant product will be able to sleep easy, others may be more troubled.”
Meanwhile, regional hotels are faring worse. Many cities had an erratic and unsatisfactory year as the Olympic effect put visitors off coming to the UK. Exceptionally poor weather in the first half of 2012 dampened holiday demand and is expected to drag down occupancy by 2.8 per cent to almost 69 per cent by the end of the year.
PwC anticipate only a marginal further decline to 68 per cent occupancy in 2013 and, despite a marginal rates growth, the regions are expected to see a 2.8 per cent decline in RevPAR in 2012 and with little change in 2013. Given the weak occupancy levels, 2013 RevPAR could see a marginal decline of 0.7 per cent to £40.
Hall added: “In the regions, demand is more dependent on the domestic economy, which has been squeezed by high inflation and the aftermath of the financial crisis. RevPAR is still 10 per cent below its 2007 level and despite near 70 per cent occupancy rates hoteliers have been unable to pass price increases through to the market.”
- Luxury and reinvented budgets squeeze the middle harder – “There has been a flurry of high-end, boutique and branded budget openings across London, often in newer hotel locations,” said Hall. “These new products clearly differentiate themselves and offer lower rates to gain market position and lure consumers away from mid-range products.”
- Meetings and events: has the market bottomed out (at last)? – Milburn added: “Leisure and business demand remains fragile and price-aware, residential meetings are hard-pressed and we anticipate another challenging year ahead. More supply, changes to company procurement policies, sustainability issues around travel and communications technology have all left their mark."