The London Hotel Market Grabs for Gold

With the Olympics fast approaching, we are excited to report that London continues to have one of Europe’s best performing and most robust hotel markets. STR Global have confirmed that for the first five months of 2012, despite the market adding 2,000 rooms to its available supply,  revenue per available room (RevPAR) was up by 3.1 percent compared to the same period in 2011. What’s more, the year shows continued activity, with AM:PM reporting that new hotel openings will bring an additional 5,000 rooms to the Capital.

With an estimated 300,000 additional foreign visitors during the Olympic Games, there is expected to be a 60 to 70% increase in average daily rate, compared to the same period in 2011.  However, the London Organising Committee of the Olympic and Paralympic Games (LOCOG) recently released 8,000 unused hotel rooms to the public market and as hotel rooms are released, we expect a slight decline in the room rate premium, which may attract visitors who were previously deterred by high prices. Days before the event, there is still availability in all hotel categories with room rates ranging from £60 to over £1,000 per night.

More positive news is that both the budget and the upscale segments are growing. At the budget end for example, Premier Inn and Travelodge are adding close to 2,000 additional bedrooms to the existing stock.

Although London hoteliers could experience a record year in 2012, they may face more challenging market conditions in 2013.  A further 5,400 rooms are scheduled to come online in 2013 (a 4.8 percent supply increase over 2012). This is a significant increase in supply, as the average yearly supply growth rate was just 2.4 percent between 2003 and 2011. Our most recent Hotel Investor Sentiment Survey (May 2012) ranked London the best market for short term trading, although sentiment for medium term trading had softened, as the high demand from the Games period is not expected to be sustained, while hotel supply continues to grow.

Overall, London has proven to be a very resilient market, with hotels posting an annual RevPAR growth of 5.8 percent during each of the last five years. RevPAR growth is expected to slow in 2013, but will remain robust in comparison to other major western European cities. So all in all London looks set for a strong period ahead…stay tuned for future updates.