For many hotel operators and investors, London remains a key strategic location. Despite widely reported difficulties in trading conditions over recent years, this has done little to dissuade both operators and investors from targeting the capital.
According to VisitLondon, between January 2001 and July 2003, over 5,000 rooms were added to London hotel supply through a mixture of both new openings and renovations. A further 4,000 rooms were recorded as being under construction during this time - a number of which opened towards the end of 2003. Whilst supply has continued to increase, hotel operating performance has moved almost as rapidly in the opposite direction.
London’s revenue per available room (revPAR) has declined by more than 20 percent since 2000. The table below illustrates the trend in London’s occupancy, average room rate and revPAR since the year 2000, which is widely regarded as the peak of London’s hotel cycle.
Last year saw Rocco Forte re-entering the London market with the £51.5 million (£436,000 per room) acquisition of Brown’s from Raffles, whilst Radisson Edwardian further expanded their presence by paying £115 million (£397,000 per room) for the former InterContinental Mayfair.
Complementing these transactions have been a number of new openings by operators looking to gain a foothold in the London market for example, Malmaison and City Inn. Others, such as Hyatt have opted to undertake management contracts limiting the risks (and rewards) of real-estate ownership.
Conversely the reported difficulties at Queens Moat House and the value of London hotels have influenced the company’s decision to reduce its exposure in the capital, which started with the sale of the Kensington Moat House at the end of 2003 for around £13.5 million (£126,000 per room).
Despite the inherent risks of operating in any market, London still possesses strong fundamentals. According to VisitBritain and the World Tourism Organisation, London captures 50 percent of overseas tourist expenditure in the UK and it is estimated that London’s international arrivals increased in 2003, for the first time since 1995. This should provide some comfort to hoteliers who have over recent years had to endure some of the most challenging conditions the industry has ever seen.
For more information visit: www.deloitte.com