Jones Lang LaSalle Reports Strong Hotel Market in London
By Kerry Medina
July 22, 2012 10:05 PM
Londonremains one of Europe’s best performing and robust hotel markets, especially as it prepares for the Olympics, according to Jones Lang LaSalle. London will continue to far outpace the rest of the European hotel market as the city readies itself for the Olympics and Paralympics taking place during July, August and September, according to Jones Lang LaSalle Hotels, which recently reported increased interest in Latin America.
In the first five months of 2012, the London hotel market added 2,000 rooms to its available supply, and revenue per available room (revPAR) improved by 3.1 percent compared to the same period in 2011, according to STR Global. For the remainder of the year, hotel development activity is anticipated to accelerate with an additional 5,000 rooms, bringing supply totals in 2012 to 114,000 rooms, a 6.7 percent increase year over year.
“London’s designation as a world-class city and global tourist hub makes it a prime location to host the Olympic Games,” said Jon Hubbard, CEO of Europe, the Middle East and Africa for Jones Lang LaSalle Hotels. “Going forward, we expect London to demonstrate growth in the hotel sector as its economy continues to strengthen compared to other European cities, although market dynamics will soften in the medium term. We expect the Games to generate additional demand for both the London and provincial United Kingdom hotel market during the summer months as various sporting events are hosted outside of the capital.”
The London Organizing Committee of the Olympic and Paralympic Games (LOCOG) recently released 8,000 unused hotel rooms to the public market, and additional rooms should be released in the coming months. Occupancy in London during July and August usually ranges between 80 and 90 percent; however, with an estimated 300,000 additional foreign visitors during the Olympic Games, there is expected to be a 60 to 70 percent increase in average daily rate (ADR), compared to the same period in 2011. “As hotel rooms are released, we expect there to be a slight decline in the room rate premium, which may attract visitors who were previously deterred by a perception of overpriced hotel rooms. At two weeks before the event, there is still availability in all hotel categories with room rates ranging from £60 to over £1,000 per night,” said Hubbard.
Both the budget and the upscale segments are growing. The London budget segment is expanding rapidly with operators such as Premier Inn and Travelodge increasing their representation in the city. Both operators are adding close to 2,000 additional rooms to the existing budget bed stock. The upscale segment also is growing and upgrading its product with an injection of capital. For example, the Savoy recently underwent a £200 million refurbishment that was completed in October 2010 and the Four Seasons Park Lane reopened in January 2011 after a two-year, £125 million refurbishment.
Although London hoteliers could experience a record year in 2012, they may face more challenging market conditions in 2013. An additional 5,400 rooms are scheduled to come online in 2013, reflecting a 4.8 percent supply increase over 2012. This is a significant increase in supply as the average yearly supply growth rate was just 2.4 percent between 2003 and 2011. Competition will be strongest in the budget segment, which accounts for approximately 50 percent of development activity in 2013
Jones Lang LaSalle Hotels’ most recent Hotel Investor Sentiment Survey (May 2012) ranked London the best market for short-term trading, although sentiment for medium-term trading had softened as the high demand from the Games period most likely will not be sustained while hotel supply continues to grow. “London has proven to be a very resilient market, with hotels posting an annual revPAR growth of 5.8 percent during the last five years despite a financial and economic crisis in 2008 and 2009. RevPAR growth is expected to slow in 2013, but remain robust in comparison to other major western European cities,” said Hubbard.