Hotels under spotlight

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London hotels will lap the rest of the UK over the next year, boasting record average room rates of nearly £130 in 2011 – the latest PwC UK Hotels Forecast have revealed.

Improving economic conditions, the return of the business traveller and international demand should lift the London rate 7% for 2010, with the average room rate (ARR) for the Capital reaching £124 (up from £116 in 2009). This should boost a 2010 RevPAR gain of almost 9%. Robust rate growth (5. 1%) should continue in 2011 with strong occupancy growth of 4. 1% – taking room rates to £130, occupancy to 85%, and RevPAR to over £110. This is over £9 higher than 2010 and £17 higher than 2009 in terms of RevPAR. Robert Milburn, UK Hospitality & Leisure leader, PwC, said: "London's hotel scene continues to bask in the glory of its recovery, and (apart from April 2010 which was impacted by an early Easter) has now seen 11 consecutive months of occupancy growth. Much will depend on the wider economy, confidence and continued favourable exchange rates, but we expect London to maintain this pace. If inflation were stripped out ARR would still have some way to go to hit historic peaks but, on current trading, occupancies are already breaking records. In fact, we are forecasting record highs for each quarter in 2011, topping out at 90% in Q3. "Provinces play catch upOccupancies in the Provinces have improved but rates are still struggling to get back into positive territory. Provincial ARR should average out for 2010 at around £61, a 1. 6% decline on 2009, although moderate occupancy growth should lift RevPAR by 1. 6%. In 2011 the Provinces should see a more sluggish 0. 7% occupancy gain, taking occupancy to 67%. Following two years of decline a welcome ARR gain of 2. 5% should take average rates to £62. 50 while RevPAR growth of 3. 2% nudges it to £42–some way behind the 2007 peak even in nominal terms. Robert explained: "Having dropped off the pace over the course of the downturn, the Provinces now rely on regional economic performance and domestic business travel to get back in the running. They suffered a revenue decline equaling that of 1992 but, vitally, corporate travel, meetings and conferences are showing early signs of a gentle recovery. Sporting events, such as the Ryder Cup, have prompted a bookings rise in certain regions, while international demand and the Edinburgh festival pushed RevPAR up by a spectacular 15% in July in the Scottish Capital. "The Olympic tightrope: balancing supply and demandWith the Olympics comes renewed hope for UK GDP, hoteliers and the tourism industry. London expects to see high levels of demand for accommodation, increased occupancy and room rates. London is generally considered an under–hotelled city with only around 2, 000 rooms added (on average) each year. However, the Capital is high on the list of must–see destinations for operators and developers–and double the volume of rooms are in the pipeline for this year. Liz Hall, head of Hotels Research, PwC, said: "Although the race is on to build rooms ahead of the Olympics, and the increase in demand stimulates the development of new hotels, the handover of supply to demand is not necessarily immediate or smooth, and can create shortages, high occupancy and raised rates–as well as the reverse. "The expected demand for hotels due to the Olympics will spike in the summer of 2012, but the supply will increase beforehand. This could lead to a depressing effect on occupancy and ARR in London hotels in 2011. It is unclear whether all planned rooms will be built, postponed or cancelled, but in a maximum construction scenario (assuming 4, 305 new rooms are built–2, 105 rooms more than the average) the forecast for London RevPAR growth for 2011 could drop from 9. 3% to 5. 7%. "Hotels that are expanding to capture Olympic trade alone are rather missing the point. The impact of the Games should be positive but could be short lived and will depend on location. On the flip side some leisure visitors may well shun London at all costs to avoid congestion or security fears, " Hall added. Big spenders walk back into grand hotelsThe improving economic conditions are stimulating revival in both corporate group and transient business travel. This should reduce the proportion of discounted rooms and have a positive impact on room rates. Some of the major hotel groups are also seeing the re–emergence of the high end corporate traveller. "Perhaps the return of that grand dame of London hotels, the Savoy, and the re–opening of other luxury hotels this year and next herald a new luxurious golden age for London, " said Milburn. "Low consumer confidence, uncertainty over interest rates, and the strength of the pound will all impact the performance of UK hotels. However, the new elephant in the room is the potential impact of the Comprehensive Spending Review, as public sector travel budgets are squeezed in the same way as corporate budgets have been over the past two years, " he concluded. Hotel Price Index Meanwhile, according to the latest figures published by the Hotels. com Hotel Price Index, the average price of a hotel room in Britain finally stopped falling in Q2 2010, posting a modest rise of 3% when compared to average prices in Q2 2009. Britons paid £83 per night on average for a domestic hotel room in Q2 2010, compared to £80 per 12 months earlier. Hoteliers will be buoyed by the news that, on average, UK prices stopped falling in the second quarter of 2010. US travellers found UK hotel rooms were 12% more expensive during this period, averaging US$186 a night, while travellers from the Eurozone saw UK prices rise 8% to €112 a night. However, when looked at globally, the Hotel Price Index in Q2 2010 was 1% lower than it was when the index began in 2004 meaning that on average we are still paying less for a hotel room than we did six years ago–good news for consumers. This is a mark of just how far prices fell during the downturn. The Hotels. com HPI tracks the real prices paid per hotel room (rather than advertised rates) for 91, 500 hotels across 15, 750 locations around the world. The latest HPI looks at prices during Q2 2010 compared to Q2 2009. Global price changes On average, the price of a hotel room around the world stabilised in Q2 2010. Prices increased on average by 2% worldwide. David Roche, president of Hotels. com, said: "Hotel pricing trends, up to the end of Q2 of 2010, confirm that stabilization has indeed been under way in the hotel industry, and that there are hints of a recovery. Hotel prices appear to have hit the bottom in the first half of 2010, and have lately trended up 2% against the prior year, the first time prices have risen since 2007. If indeed we're seeing the beginning of a true recovery, it is an uneven recovery, and one starting from a low base. Prices remain at levels not seen since 2003 or 2004 in much of the developed world–the Asian–Pacific region is the only one to show any significant growth. " The world's most expensive cities Geneva became the most expensive city in the world for travelling Britons this year, with the average price of hotel room rising by 5% to £155. This was partly due to the strength of the Swiss Franc and also a reflection of the high demand for rooms in the city. Monte Carlo dropped to second spot in the table averaging £152, despite a rise of 2%. New York (averaging £151 a night) reflected the recovery by remaining in third place as prices rose 9%, thanks to improved corporate and domestic demand. Moscow prices fell 9%, making it the fourth most expensive city. The average price of a night in London was £110 per night in Q2 2010, up 9% from a year earlier. Hotels in the World Cup hosting city of Cape Town experienced the world's biggest price hikes with a recession busting increase of 54%; rising from an average price of £82 to £127 for a night's stay. Abu Dhabi saw the steepest falls in hotel prices as a result of the economic slowdown continuing to affect the region, with room rates dropping a substantial 35% to average £113 per night. For a full copy of the HPI report plus maps and graphics go to:http://www. hotels. com/press/hotel–price–index. html

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