Regional full-service hotels are continuing to experience tough market conditions as inflation and the VAT rise impact consumer spending, while profit in London hotels is set to hit pre-recession peak levels of mid-2008, according to TRI Hospitality Consulting.
For 2011, TRI is forecasting zero growth in occupancy in the provinces and a marginal increase of 1% in average room rate, resulting in 0.9% growth in revenue per available room (revpar).
However, while rising living costs are impacting leisure spend, corporate business is showing improvements over 2010.
Jonathan Langston, managing director of TRI Hospitality Consulting, said the increase in commercial demand should offset a forecasted dip in leisure business.
"The UK provincial hotel market continues to face challenging conditions resulting in no revenue growth in 2011," he said. "Combined with increasing costs, we forecast profit decline this year.
"Corporate and leisure clients are on restricted and prudent budgets and are therefore seeking value for money. The growth of the budget sector combined with current market conditions has intensified competition, particularly in the mid-market sector in secondary and tertiary provincial locations."
Meanwhile, TRI projects average room rate growth in London of 3.4%, with marginal growth in occupancy of 0.3%.
"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," said Langston. "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."
The capital will not benefit in 2011 from the demand spikes generated through large events such as Farnborough. However, figures from VisitBritain indicate that leisure demand is set to remain robust with a strong growth in overseas visitors from Brazil, Russia, India, China, North America and Europe.
"In 2010, the significant rise 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.
"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."
By Janet Harmer
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