Interest rate rises fail to dent UK Hotel Market

Despite concerns about the impact of interest rate rises on consumer spending, the UK hotel market has maintained high levels of growth in the six months to the end of June 2007. The latest results from the HotelBenchmark Survey by Deloitte show that across the UK revPAR (revenue per available room) has increased 8.3%, with a number of cities posting double-digit increases.

London hotels have had the highest occupancy of any European city this year. High demand has allowed hoteliers to increase their rates and together, this lead to London hotels generating revPAR growth of 12.8%.

Commenting, Marvin Rust, Hospitality Managing Partner at Deloitte said; 'The continued growth of global financial services and merger and acquisition activity is leading to strong demand for London hotels. With occupancy exceeding 80%, we would expect average room rates in London to grow significantly in the next year reflecting the 'full' status of the city.'

Across the rest of the UK, regional hotels have seen revPAR growth of 5.5%. It comes on top of growth of 4.7% in 2006.

Aberdeen achieved the highest revPAR growth of any UK city. A lack of supply in the market saw revPAR increase 18.7% in the first 6 months of the year. The average hotel room in Aberdeen now costs £73 a night, up from £62 a night at the same time last year. Oil crew and business travel account for a large proportion of room nights, especially on Tuesdays and Wednesdays which are the crew change-over days. A new supply of hotel rooms is predicted but not expected for a few years.

Glasgow also achieved strong growth. A high profile campaign from the Glasgow Marketing Bureau and room bookings around the UEFA cup final contributed to rising occupancy and increased room rates, with revPAR growth of 18.3%.

Greater political stability means Belfast has also seen strong hotel performance this year. RevPAR increased 11.7%. Weekends are seeing high occupancy as Belfast takes some of the leisure market (stag weekends, weekend breaks) away from Dublin. Hotels in Aberdeen and Belfast have now been increasing revPAR on a year-on-year basis since 2003.

Looking forward, Deloitte believes the outlook for hotels remains positive. Marvin Rust said: 'If the government continues to raise green taxes such as air passenger duty, and concerns about leaving carbon footprints increase, more UK people could holiday at home rather than abroad. Hotels in the South West in particular are most likely to benefit from domestic tourism.

'London's wealth will also have knock-on effects for tourism elsewhere in the UK leading to increased demand for hotels,' he said.

However, Marvin Rust adds a note of caution: 'The key uncertainty regarding the near-term prospects of the UK is the impact of higher interest rates. A mild slowdown in consumer spending may have a knock-on effect on hotels.'

'Risks also remain around the safety and security of visitors and the ease of travel to the UK with higher security levels,' said Rust. 'And while the outlook for global demand has strengthened, foreign tourists, particularly those from the US, still have to contend with the strong pound.'

Performance of other regional cities:

Nottingham. RevPAR has increased 10.8% in Nottingham following the Destination Nottingham campaign and the Conservative Spring Conference. The city has seen new 4-star hotels open, including the Crowne Plaza, which helps attract tourists willing to pay more for a room.

Bristol has seen the biggest decline in occupancy and RevPAR of any UK city this year. RevPAR has decreased 7.4% in the six months to June due to new supply in the market diluting average room rates.

Leeds and Edinburgh are now leading financial centres, with higher demand from business travellers boosting hotel rates. RevPAR in Leeds increased 3.9% and in Edinburgh 4.1%.

UK City Performance - six months to end June 2007

Source: HotelBenchmark(TM) Survey by Deloitte

Note: all analysis in UK£



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