06/23/2011  LONDON FORECAST

    TRI Hospitality Consulting forecasts the London full-service hotel market will continue to increase room rate to the leisure and commercial markets, projecting average room rate growth of 3.4%, whilst occupancy will remain relatively stable given 2010s robust performance, with room for marginal growth in occupancy of 0.3 percentage points.



    In 2010, London hotels experienced a significant increase in occupancy and average room rate performance, sustained throughout the year by an increase in corporate demand and events such as the biennial Farnborough Festival. In the first quarter of 2011, occupancy performance has dipped, with London hoteliers pursuing a rate growth strategy to commercial and leisure markets, further enhancing London market average RevPAR performance,said Langston.



    In 2011, London will not benefit from the demand spikes generated through large events such as Farnborough, and the timing of Ramadan in August this year is expected to affect Summer demand from the Middle East. Although latest figures from Visit Britain indicate that leisure demand is forecast to remain robust as the strong growth in overseas visits from BRIC, North America, and recovering European economic countries will sustain buoyant visitor levels to the capital. The continuing decline in the strength of sterling versus the euro will boost European inbound but a weak dollar will temper US tourism to London even though US inbound visitor levels increased by 5.0% in the first quarter of this year.



    The continuing trend of increased commercial demand as a proportion of total market mix, and increased rate growth to all sectors, result in TRI Hospitality Consulting to forecast further average room rate growth of 3.0% in 2011 and overall RevPAR growth of 3.4%.



    Whist hoteliers continue to raise room rates in the capital, data from TRI Hospitality Consultings HotStats database indicates that the value of additional discretionary spend on non- rooms related services including food and beverage and leisure services is declining, albeit marginally, when compared to 2010 performance. TRI Hospitality Consulting forecasts this trend will continue throughout 2011, moderating TrevPAR growth to 2.2%.



    TRI Hospitality Consulting projects that subdued revenue growth, rising costs and limited opportunity for further operational efficiencies in 2011 will lead to GOPPAR growth of 1.1%.In 2010, the significant increase in revenue performance, combined with highly efficient operating cost strategies resulted in London hoteliers enjoying significant growth in gross operating profit," said Langston. "In current market conditions where there are challenges for hoteliers to control operating costs such as payroll with the increase in National Insurance contribution, and other hotel supply chain costs which have increased in the current inflationary climate, profit growth is likely to be more restrained this year," he added.



    However, it should also be noted that gross operating profit performance is fast approaching peak pre-recession levels achieved in mid-2008, just before the credit crunch and subsequent recession - a strong recovery in under a four-year period, he concluded.