• Challenging market conditions in 2011 will continue to affect UK Provincial fullservice hotels leaving sales growth flat and profits down.
• London sales and profit growth to be tempered in 2011 on the back of a remarkable recovery in 2010.
• But London profit performance to hit pre-recession peak levels of mid-2008.
• UK Provincial and London occupancy, average room rate and RevPAR forecast also provided by TRI.
• Both sets of forecasts derived from TRI Hospitality Consulting’s unique HotStats database which tracks monthly hotel revenue, cost and profit performance.
TRI Hospitality Consulting has issued an updated forecast for the UK hotel industry for 2011 offering a unique insight into hotel market industry profit performance.
“The UK Provincial hotel market continues to face challenging conditions resulting in no revenue growth in 2011. Combined with increasing costs, we forecast profit decline this year,” said Jonathan Langston, managing director of TRI Hospitality Consulting.
UK Provinces
The UK provincial full-service hotel market is set for challenging market conditions as inflation and the VAT rise will continue to impact consumer spending throughout 2011.
For 2011, TRI Hospitality Consulting forecasts zero growth in occupancy performance, and a marginal increase (1.0%) in average room rate, resulting in 0.9% growth in Room Revenue per Available Room (RevPAR) performance.
“2011 will see the impact of tax increases and the rising cost of living on the consumer, which we believe will result in a decrease in achieved leisure market sector room rate in the UK provinces. In contrast, data from our HotStats database is showing that the volume and value of
commercial room night demand is increasing when compared to 2010 performance,” said Langston.
“Typically commercial demand is more lucrative for provincial hotels when compared to leisure market performance, and overall, the increase in commercial demand should at least off-set a forecasted dip in leisure room night and sector rate performance,” he added.
With well publicised public sector job cuts, CPI inflation at 4.1% in 2011 and market evidence already suggesting reduced UK consumer spending, TRI Hospitality Consulting forecasts zero growth in Total Revenue per Available Room (TrevPAR) performance.
TRI Hospitality Consulting – 2011 UK Hotel Market Forecast June 2011
“Corporate and leisure clientele are on restricted and prudent budgets and are therefore seeking value for money. The growth of the budget sector combined with current market conditions has intensified competition, particularly in the mid-market sector in secondary and tertiary provincial locations. Whilst we forecast marginal growth in RevPAR performance, it is unlikely we will see a market average increase in total revenue performance for the provinces,” commented Langston.
Tempered revenue performance combined with increasing operating costs is likely to result in continued Gross Operating Profit per Available Rooms (GOPPAR) decline for 2011. With many provincial hotels having already implemented cost saving efficiencies in 2009 and 2010, TRI
Hospitality Consulting forecasts a 4.0% decline in gross operating profit performance.
London Forecast
TRI Hospitality Consulting forecasts the London full-service hotel market will continue to increase room rate to the leisure and commercial markets, projecting average room rate growth of 3.4%, whilst occupancy will remain relatively stable given 2010’s robust performance, with
room for marginal growth in occupancy of 0.3 percentage points.
“In 2010, London hotels experienced a significant increase in occupancy and average room rate performance, sustained throughout the year by an increase in corporate demand and events such as the biennial Farnborough Festival. In the first quarter of 2011, occupancy performance has
dipped, with London hoteliers pursuing a rate growth strategy to commercial and leisure markets, further enhancing London market average RevPAR performance,” said Langston.
In 2011, London will not benefit from the demand spikes generated through large events such as Farnborough, and the timing of Ramadan in August this year is expected to affect Summer demand from the Middle East. Although latest figures from Visit Britain indicate that leisure
demand is forecast to remain robust as the strong growth in overseas visits from BRIC, North America, and recovering European economic countries will sustain buoyant visitor levels to the capital.
The continuing decline in the strength of sterling versus the euro will boost European inbound but a weak dollar will temper US tourism to London even though US inbound visitor levels increased by 5.0% in the first quarter of this year.
The continuing trend of increased commercial demand as a proportion of total market mix, and increased rate growth to all sectors, result in TRI Hospitality Consulting to forecast further average room rate growth of 3.0% in 2011 and overall RevPAR growth of 3.4%.
Whist hoteliers continue to raise room rates in the capital, data from TRI Hospitality Consulting’s HotStats database indicates that the value of additional discretionary spend on nonrooms related services including food and beverage and leisure services is declining, albeit marginally, when compared to 2010 performance.
TRI Hospitality Consulting forecasts this trend will continue throughout 2011, moderating TrevPAR growth to 2.2%.
TRI Hospitality Consulting – 2011 UK Hotel Market Forecast June 2011
TRI Hospitality Consulting projects that subdued revenue growth, rising costs and limited opportunity for further operational efficiencies in 2011 will lead to GOPPAR growth of 1.1%.
“In 2010, the significant increase in revenue performance, combined with highly efficient operating cost strategies resulted in London hoteliers enjoying significant growth in gross operating profit,” said Langston. “In current market conditions where there are challenges for hoteliers to control operating costs such as payroll with the increase in National Insurance contribution, and other hotel supply chain costs which have increased in the current inflationary climate, profit growth is likely to be more restrained this year,” he added.
“However, it should also be noted that gross operating profit performance is fast approaching peak pre-recession levels achieved in mid-2008, just before the credit crunch and subsequent recession – a strong recovery in under a four-year period,” he concluded.
Notes
The forecasts are predicated on the assumption that:
• UK GDP growth will be between 1.5% and 2.0% in 2011.
• CPI inflation will rise to 4.1% in 2011, as per latest HM Treasury forecast.
For more information contact:
Jonathan Langston, managing director – 020 7486 5191 – jonathan.langston@trihc.com