Profitability will grow in London hotels in both 2010 and 2011, while the falling profitability of the past two years in provincial hotels is expected to moderate this year and be flat next year, according to forecasts published by TRI Hospitality Consulting.
So far this year, the performance of London hotels has been robust, with growth in occupancy from 80.3% to 82%, room rates from £114.05 to £121.47, and revenue per available room (revpar) from £91.54 to £99.59, year-on-year. Further growth is predicted for next year, with an increase in occupancy to 83%, room rate to £124.12 and revpar to £103.01.
Jonathan Langston, managing director of TRI Hospitality Consulting, said that London hoteliers had responded rapidly this year to the increase in corporate demand from the low point of last year.
"The corporate market commands a superior sector rate to the leisure market, and we are seeing London full-service hoteliers shed lower-rated business, a market which was relied upon to replace the loss in commercial demand in 2009, as rack and corporate demand continues to grow," he said.
While growth is forecast in London hotels in 2011, continuing global economic uncertainty and the strengthening of sterling against the dollar and the euro is likely to limit the level of the growth nationwide.
Meanwhile, hotels in the provinces have stemmed the decline in occupancy and revpar and look set to finish the year with an increase in occupancy, up from 67.9% to 69.6%, and in revpar, up from £46.76 to £47.22, year-on-year. However, average room rates have dropped again from £68.86 to £67.80.
Trading was particularly difficult at the beginning of the year, with severe weather disrupting much business and leisure travel, but since May the revpar performance has remained stable.
"The data indicates that the small recovery in revpar performance has been volume-led, and we have seen a pick-up in transient corporate demand," Langston said.
TRI predicts that occupancy, room rates and revpar will remain static in provincial hotels during 2011. The leisure market for hotels is set to become more competitive as the increase in VAT and public-sector cuts affecting employment levels take effect.
"While the value of leisure demand is forecast to decrease, we are seeing midweek transient corporate demand levels increasing, with many provincial city markets experiencing near-to-full midweek occupancy levels," Langston said. "We believe that there will be some, albeit small, rate growth during these midweek periods. These small gains in commercial rates are likely to balance off the loss in the value of leisure demands.
"2011 will be a year for provincial hotels to stabilise financial performance amidst continued challenging market conditions."
By Janet Harmer
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