Hotel supply growth suggests investor confidence but could impact market conditions

By Luke Nicholls

- Last updated on GMT

Related tags: Hotel

Plans to build this 170-bedroom hotel in Wapping, Liverpool, were submitted to the City Council in 2012
Plans to build this 170-bedroom hotel in Wapping, Liverpool, were submitted to the City Council in 2012
Hotel planning application data from 2012 indicates that there is a significant net investment growth in the sector, but the opening of 31 properties in London this year could in fact cause a decline in Revenue per Available Room (RevPAR) across the capital.

According to new data from construction information provider Planning Pipe, plans for over 180 new hotels were submitted to local authorities last year – potentially adding another 14,500 rooms across the UK.

“New plans are not of course synonymous with available funding and construction start, however the data provides further evidence of real confidence in the hospitality sector” said Paul Graham from Planning Pipe.

“Despite the fact that we also saw plans for the closure and conversion of 72 hotels – with the loss of an estimated 850 rooms - overall there is clearly a positive picture of significant net investment growth in the sector.”

'Challenging market conditions'

Five out of 10 of the largest  new hotel projects are planned for London; headed by a new six-storey, 425-room project near Heathrow’s Terminal 1 which gained planning approval in November last year.

London was the most popular regional location for hotel planning applications in 2012.

But Graham Craggs from real estate company Jones Lang LaSalle (JLL) has warned that the demand for hotels - particularly those in London – could slow this year with the absence of major national events.

“With room night demand growth likely to be limited over the next year, we believe that this further growth in hotel supply could result in more challenging market conditions for hoteliers in the short term,” said Craggs in JLL's latest London Hotel Developments report.

“With hotel demand slowing in 2013 due to the absence of major events such as the Olympics and a sluggish UK and European economy, in 2013 we believe that additional supply will increase the likelihood of a potential flattening or even a decline in RevPAR.”

The majority of development activity is expected to occur in the budget and 4-star segment, accounting for 50 and 31 per cent respectively of total bedrooms in the pipeline for 2013 and 2014.

Trading impact

Craggs did conclude, however, that there was ‘no clear evidence that a strong supply increase in the city has had a materially negative impact on the trading performance of existing hotels’.

“This was even the case in the City of London and Southwark where supply growth has been the highest,” he added.

Planning Pipe’s application data also revealed that 115 hotels have undertaken significant refurbishment or extension over the past year – adding a further 2000 new rooms.

As the above chart shows, the most popular location for planning applications in 2012 was of course London.

Last month, similar data from Planning Pipe revealed that there remains a high level of interest in food and drink businesses, with plans submitted for over 1100 new restaurants, bars and cafes across the UK in the final quarter of 2012.

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