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Slowdown not meltdown for UK hotels

UK hotels are unlikely to experience a meltdown in 2008 or 2009 according to PricewaterhouseCoopers LLP. Although change is coming and there will be fallout from the current global financial uncertainty and economic slowdown, UK hotels are relatively well placed to cope according to the latest PricewaterhouseCoopers ‘Hospitality Directions: UK Hotel Forecast’…

UK hotels are unlikely to experience a meltdown in 2008 or 2009 according to PricewaterhouseCoopers LLP. Although change is coming and there will be fallout from the current global financial uncertainty and economic slowdown, UK hotels are relatively well placed to cope according to the latest PricewaterhouseCoopers ‘Hospitality Directions: UK Hotel Forecast’.
Robert Milburn, partner and UK leader of Hospitality and Leisure, PricewaterhouseCoopers LLP, believes there are still opportunities to grow revenues for hotels.

 “This is a time for hotels to hold their nerve. While the industry will feel the pinch from the latest economic situation, it is coming from a good position with some excellent products in the market.

“In fact, UK hotels overall should still see reasonable growth through to the end of 2009. But the economy is very fragile at present and another tilt could have a more significant impact on the sector.”

In PricewaterhouseCoopers central scenario, UK revenue per available room (RevPAR) is forecast to grow by 4.1% in 2008 and 3.6% 2009. In London, RevPAR could grow 6% in 2008 and 4.4 % in 2009. Occupancy levels in the UK will remain flat or may even see some small declines over this period.

Average room rates have been soaring, especially in London, for several years and although they will see continued growth over the next two years, the pace of growth is definitely slowing.

Liz Hall, head of hospitality research, PricewaterhouseCoopers LLP commented: “As hotel room rates start to ease, operators have become more aggressive with sophisticated revenue management strategies and stealth charges. A tightening of corporate travel budgets and policies and more careful consumer spending will make it harder to attract both the consumer and the corporate pound.

“It is an interesting time for the industry and all eyes are on the economy but the next 18 months will not just be about the economy. There are many intangibles that drive consumer choice. Many operators have invested heavily in quality products and service in recent years. This should pay off now by helping deliver a unique experience which consumers may recommend to their social networks – online and in person.”

Any change in market dynamics could see consumers trading up or down to get the experience they desire and branded budget hotels could be beneficiaries.

Robert Milburn, commented: “So far the pain has been felt mainly in the deals market although it is having a creeping affect on trading. But we would stress that the sector is generally in very good shape with focused management and some exciting products.

“Our main forecast is based on reasonably robust economic growth of 1.9 per cent this year and 2 per cent in 2009. In an attempt to gauge just how nasty things could get for hoteliers, we have also prepared a more pessimistic forecast based on slower GDP growth of 1.4 per cent and 1.6 per cent in 2008 and 2009. Although in this scenario the Provinces hold up quite well, London growth slows sharply and the capital could see RevPAR gains of only 2.5 % and 2.8% this year and next.

“In terms of investment and development, the credit crunch may even be a good thing for the industry. Large developments that have not been committed to yet could be postponed and result in less new supply coming on to the market in 2009. This will help keep rates up.”

CITY FORECASTS

London’s hotels saw records broken in 2007 but in 2008 PricewaterhouseCoopers LLP forecasts room rate and RevPAR growth to be almost half that achieved in 2007. So London will still see growth but not at the same pace as seen recently. Nevertheless, occupancy levels are expected to remain high at around 81%, but will see little growth over the next few years. Average room rates are still anticipated to increase, rising to £127.02 in 2008, and £133.68 in 2009. RevPAR may pass £100 for the first time in 2008, increasing 6% to £103.43 and by 4.4% to £107.97 in 2009.

Edinburgh is one of the busiest UK tourist, conference and business cities after London. The city employs around 200,000 in the financial services sector but tourism chiefs believe tourism will continue to grow and the city will need an estimated 4,000 hotel rooms by 2015 to cope with expected growth. The city will see RevPAR growth of 4.6% in 2008, easing to 4.4 % in 2009. Occupancies look likely to remain high at around 78 per cent over the forecast period and room rates could top £90 by 2009.

Manchester is now a favourite with visitors and has attracted many major events in recent years with 2008 expected to be the busiest year for sporting events since the Commonwealth Games. PricewaterhouseCoopers LLP expects slower RevPAR growth in 2008 as supply additions impact further, giving RevPAR growth of around 3.2 % with a further 3.7% gain in 2009. Occupancy levels will remain flat for the next two years but room rates should grow by around 3% each year. Hoteliers interviewed commented that it is the older, ‘tired’ room stock that is being impacted more adversely by new supply than the new fresher hotels and brands.

Birmingham is expected to benefit from a cyclical upswing in conferences and exhibitions this year with some small increase in demand and room rate gains of 2.9% this year followed by 3.1% in 2009. Overall, RevPAR is expected to grow by a healthy 4.4% in 2008 and 4.1% in 2009. Hoteliers interviewed as a part of the research revealed strong revenue growth towards the end of 2007 but many expected a solid, if unexciting, year in 2008.

PROVINCES FORECAST

The provinces have not experienced London’s roller coaster ride of recent years and room rate growth has been more modest. Research among hoteliers has shown a patchy performance in January 2008 as demand slows with mixed, but generally optimistic, views regarding the year ahead. There have been considerable supply additions throughout the cities. RevPAR is expected to grow by 3.2% in both 2008 and 2009. Occupancies are likely to average around 72%. In a carbon footprint aware world urban hotels close to public transport and with a good range of commercial and conference, as well as leisure, demand could be at an advantage.

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