Middle market hotels are coming under increased pressure as they are squeezed by budget and luxury businesses.
That's the finding of PricewaterhouseCoopers in its latest hotels forecast.
Liz Hall, head of hospitality and leisure research at PwC, said: "There has been a flurry of high-end, boutique and branded budget openings across London, often in newer hotel locations. These new products clearly differentiate themselves and offer lower rates to gain market position and lure consumers away from mid-range products.
"With at least 2,400 high-end and boutique rooms set to open in London in the next couple of years, the need to differentiate and reinvent the middle ground becomes ever more necessary."
PwC's research showed that 2012 saw the UK's largest room supply increase from new developments in the last decade. In London, the 2012 Games catalysed development on a scale unlikely to be seen again.
Supply growth remains above average and which will impact occupancy rates in a weak travel environment.
The company forecasted that London was likely to see supply growth of around 7% in 2012 (8,000 new rooms) and 3.8% in 2013 (4,900 new rooms). In the regions, pockets of supply also remain above average levels and new branded budgets continue to force down average rates.
Robert Milburn, hospitality & leisure leader at PwC, added: "Supply growth is driven by high occupancies and ADR average daily rate], and may result in a period of adjustment while new supply is absorbed. Brands in the right location and with a relevant product will be able to sleep easy, others may be more troubled."
Meanwhile, PwC speculated that the recession in the meetings and events market may finally have bottomed out, with higher optimism in the corporate sector, although demand in the non-profit sector remains weak, perhaps due to public sector cuts.
Milburn said: "Leisure and business demand remains fragile and price-aware, residential meetings are hard-pressed and we anticipate another challenging year ahead. More supply, changes to company procurement policies, sustainability issues around travel and communications technology have all left their mark.
"However, renewed optimism for a modest revival in conference and event demand and a continued resurgence in business travel should ensure the slow UK hotel recovery continues."
By Neil Gerrard
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