Hoteliers sense a full recovery
A mood of cautious optimism appears to be pervading the UK hotels sector, with analysts' figures and anecdotal evidence pointing to a slow and steady recovery since the nadir of April 2003.
Encouragingly, the trend is being spotted by hoteliers, property consultants, financiers and analysts alike, with both consultants PKF and property firm Knight Frank using the term "cautious optimism" in the past few weeks to describe the current situation. The cagier management consultancy TRI Hospitality, however, remains "heavily cautious".
Although no one's getting carried away and talking up a full-scale recovery and a return to the solid performances seen in the mid-1990s, there's a growing feeling that the industry has turned a corner since April and started to head in the other direction on a monthly basis.
In its figures for August, PKF saw signs of a resurgent hotels sector, buoyed by good weather and an increase in overseas visitors. Although doom-mongers could point to the continuing fall in average room rates, August saw a year-on-year occupancy rate increase of 2.1 percentage points to 79.1% in London and 0.3 percentage points to 73.1% outside London. And PKF managing director Melvin Gold said the pattern of occupancy rates leading room rates was reminiscent of the early stages of a recovery.
The "heavily cautious" TRI Hospitality also reported signs of a recovery in its report for August, although TRI managing director Jonathan Langston stressed the recovery was proving "very slow" and could continue at its current rate until well into next year.
While there have been well-documented reasons for the situation hoteliers have faced recently - Sars, war in the Middle East and the global economic downturn being the most notable - there have also been positives.
Interest rates have remained consistently low and overseas visitor figures have increased slightly over the summer. "[These factors] have encouraged new investors and existing hotel operators to re-evaluate hotel property acquisition strategy and take a more positive view of the sector," concluded Knight Frank in its latest UK Hotel Review.
Financial backing for hotel deals has also remained strong, although the banks have arguably been pickier about the kind of deals they back. There have been a lot of transactions going on, albeit not of the megadeal variety.
Property firm Christie & Co has seen demand for hotel properties outstrip supply in 2003. Director Simon Hughes pointed to the shortage of properties available for sale, the increased speed with which deals are being concluded and the rise in multiple bids as good signs for the sector.
While the market remains deflated, hotel companies should be looking to invest in their existing properties in order to prepare for the upturn when it comes, said Robert Milburn, UK leader for hospitality and leisure at consultant PricewaterhouseCoopers. "But they need to invest in an innovative way," he said. "There's no point in just giving the rooms a lick of paint and rolling out the same product as before. I'm not sure we've turned the corner yet, though - better to say the corner is in sight."
Front-line views
Jonathan Raggett, managing director of Red Carnation Hotels, an eight-strong group with hotels in London, Geneva and South Africa
"There's definitely a mood of cautious optimism. We're busy from September to mid-December although this is traditionally one of our busiest seasons with the conference market. Our four-star properties have achieved occupancy rates in the high 80s and 90s for the past 16 weeks. Our challenge now is to build on rate. As hoteliers we've been guilty of letting third parties fill our rooms at less than our normal prices. As the American market returns we should see rate starting to push up."
Rupert Kenyon, marketing director of Alias Hotels, a four-strong group in Cheltenham, Brighton, Exeter and Manchester, and due to open in Liverpool next year
"We're generally on or above budget. The Hotel Seattle [in Brighton] has been doing 66% since it opened in February, which isn't bad for a new hotel. It feels good from where we sit, although obviously that's in the provinces. Lead times are lengthening a bit and the Kandinsky [in Cheltenham] is looking good for October."
Diversification pays off
Greville Dare, managing director of the 62-bedroom Petersham hotel (pictured left) in Richmond, Surrey, and the Elvetham, Hartley Wintney, Hampshire, with 72 bedrooms
"After a bad start we're now doing better than last year. Average occupancy is around 70%, about the same as this time last year. But we've definitely seen a shift in the business. We used to have a 70:30 split, rooms to food and beverage, but that figure's now more like 50:50 as we take more revenue from private dining and small meetings and conferences. As a result, we've decided to invest in these areas and will be spending between £75,000 and £100,000 this winter. I wouldn't have felt confident about spending that amount of money earlier in the year."
