Post-financial crisis the needs of consumers are far removed from those prevalent in the pre-recession boom. In all aspects of life, change can be seen and holidaying preferences have inevitably proven to be of no exception. The transformation can perhaps best be seen in the UK tourism capital - London. Hoteliers will no doubt attest that in 2013 the market is a very different beast and a further sea change could be just around the corner as the capital adjusts to post-Olympic Games life and budget Britain.
This year and beyond it seems the main difference in the hotel market will be the increase in budget accommodation and slowing demand. Across the UK it has already been noted that the middle of the market is being squeezed by budget hotels from the bottom and luxury accommodation at the top.
In its Focus On: London Hotel Development report, Jones Lang LaSalle noted that development activity was increasingly being centred in the budget and four-star segment. This sector accounted for roughly 71 per cent of new bedroom supply in the capital between 2005 and 2012. Both domestic and global operators are populating the market too, including the Carlson Rezidor Hotel Group and Hilton for the four-star segment and Travelodge and Whitbread (Premier Inn) for the budget sector.
Between 2005 and 2012, Travelodge Hotels added the greatest number of bedrooms to the Greater London hotel market, with a total of 34 hotels and about 4,600 bedrooms. Meanwhile, Whitbread opened 16 Premier Inn hotels with 2,500 bedrooms. French group Accor was another big player in the London budget market under its Ibis brand.
However, it's not all fun and games for the hotel market and slowing demand amid increased supply will put downward pressure on prices for hoteliers. Speaking in January, Graham Craggs, managing director of hotels and hospitality at Jones Lang LaSalle, said: "The London hotel market has shown impressive resilience in recent years with occupancy stable at around 80 per cent. Both domestic and international hotel operators have been expanding their presence in this core market, causing supply to increase substantially."
While this had yet to have a negative impact on trading performance towards the end of 2012, Mr Craggs was right to predict short-term effects for the London market in 2013. "This further growth in hotel supply could result in more challenging market conditions for hoteliers in the short term," he said. "With hotel demand slowing in 2013 due to the absence of major events such as the Olympics and a sluggish UK and European economy, in 2013 we believe that additional supply will increase the likelihood of a potential flattening or even a decline in RevPAR."
Indeed, RevPar (revenue per available room) has started to slide in the capital this year, while growth has once again increased in regional markets. However, demand is still present, even in the City of London and Southwark, where supply growth has been the highest. Developers certainly have confidence in the future of the city's hotel environment, particularly in the budget sector. Travelodge has earmarked 95 developments across the capital alone and across the board it is expected a further 31 hotels will be released in 2013. This equates to 4,600 bedrooms, which will be joined by a 4,200 more in 2014 from 26 hotels.
The lion's share of this development will take place in the budget and four-star segments, however. Jones Lang LaSalle believes 47 per cent and 35 per cent of new supply will come from these respective markets in 2013 and 2014. Unsurprisingly, Premier Inn and Travelodge account for the majority of development activity, but independent operators are starting to make themselves heard in the four-star segment.
Investment in the hotel sector doesn't look set to slow anytime soon either. The UK has been earmarked for growth and in the first half of 2013, Britain had the most active transaction market in the EMEA. Investment volumes amounted to 2.3 billion euros - 41 per cent of total EMEA volumes.
Jonathan Hubbard, chief executive officer of Northern Europe for Jones Lang LaSalle’s Hotels & Hospitality Group, said: "The year has had an extremely good start with investment activity accelerating in a number of key markets. Given the improvement in financing conditions we can expect 2013 volumes to exceed our initial forecast of €8.5 billion."
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