Hotel Market Outlook - Double-Digit Growth Predicted For London Hoteliers In 2010

Welcome to the sixteenth edition of Hotel Market Outlook by Deloitte – our quarterly publication for the UK hotel sector. The outlook is produced using data from an inconsistent sample of hotels collected by STR Global Limited. This data is input into an econometric model developed by the independent economic research firm, e-forecasting Inc, to produce hotel performance outlooks for London and Regional UK.

Hotel Market Outlook capitalises on Deloitte's extensive knowledge of the hospitality industry, enabling us to provide you with commentary and analysis on future trends, as predicted by the e-forecasting model, as well as historic ones.

As always, we hope you will find this publication of interest and we would be delighted to receive your feedback.

Marvin Rust Managing Partner – Hospitality Deloitte

Overview

The final quarter of 2009 posted some impressive results for hoteliers in London with revenue per available room (revPAR) rising out of the red, up 7.4% to £101.29. Occupancy was the key driver of growth, while average room rates – which typically lag occupancy in a recovery – saw only marginal improvements. As a result of this strong performance, year-end revPAR was not as gloomy as previously predicted and fell just 3.9%. Meanwhile, hotels across Regional UK posted further revPAR declines for the quarter, down 5.7% as both occupancy and average room rates remained in negative territory. Occupancy is yet to see growth here, the first step towards recovery for the regions and as a result, year-end revPAR saw double-digit declines of 10.4% – the worst performance in the last 20 years when hotel performance suffered as a result of the combined effects of the 1991 Gulf War and the early 1990's recession.

The UK economy has been slowly picking up over the last few months and in Q4 2009, the preliminary estimates are that GDP grew 0.1% – signalling a technical end to the recession. Some analysts are predicting a double-dip recession and with a combination of bad weather in January and a VAT rise will both put downward pressure on at least the Q1 2010 performance. However, the consensus is that economic recovery is most certainly expected to be slower than previously forecast and it is unlikely that GDP will return to pre-recessionary levels for a considerable time. Although inflation spiked to 3.5% in January, as the economy remains relative weak, inflation could drop back below the Bank of England's 2% target later this year.

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