Hotel Market Outlook - London Hotels Heading For A Fall?

Welcome to the Q2 2010 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

Q2 2010 saw hoteliers in London maintain the strong revenue per available room (revPAR) growth achieved during Q1, rising 8.5% to £102.27. Although occupancy saw marginal increases, up 0.7%, average room rates remained robust, growing 7.7%. There was good news for hotels in Regional UK too. After six consecutive quarters of revPAR decline, Q2 saw a 4.5% increase in revPAR to £45.91. This growth was driven by a 4.9% rise in occupancy, which now stands at just over 70%.

Since the last issue of Hotel Market Outlook, the UK economy continues on the road to recovery. GDP grew 1.2% during Q2 – more than the 1.1% initially thought – buoyed by strong performance in the construction sector. As a result, this was the fastest rate of quarterly expansion reported since Q1 2001. Unemployment is also recovering well. According to the Office of National Statistics, the number of people unemployed fell by 49,000 to 2.46 million in the three months to June, the biggest drop in three years. The UK inflation rate eased in July to 3.1%, although it remains well above the Bank of England's (BOE) 2% target rate. The main reasons behind the continued strength of inflation includes the return of VAT in January to 17.5% following its reduction to 15% during the recession, together with increases in oil prices generally and higher import prices as a result of a depreciating pound since the middle of 2007. The BOE now expects inflation to remain higher than forecast for the foreseeable future, primarily due to the rise in VAT to 20% in January 2011. The BOE expects the economy to grow by less than 3% next year; down from the previous forecast of 3.5% (the model...