Sustained growth predicted for London hotels

London hoteliers can breathe a sigh of relief in the coming months, according to Pricewaterhouse Coopers (PwC), but hotels outside London have been given a bleak forecast.

PwC's Hotel Forecast 2010, published tomorrow (March 2), predicts a 3% growth for hotels in London this year, shooting up to a 5% growth in 2011. The average room rate is likely to rise 1.8%, while occupancy is predicted to rise 1.3%.

Robert Milburn, UK hospitality and leisure leader, PwC, said: "Visibility is limited but reports of higher levels of transient visitors, more group conference bookings and a return of the business traveller (albeit slow) are all positive - especially for London.

"Growth in the UK hotel industry reflects the Capital's resilience to the recession. We think the worst is over and London looks set to build on its flourish in late 2009."

London hotels' revenue per available room (RevPAR) fell by 9% in the first six months of 2009, but by the end of the year the RevPAR was down only 4.8%, after five months of consecutive growth. In January this trend continued with a RevPAR gain of almost 9%.

The improved outlook will mean higher costs for travellers. Over the coming year London should see RevPAR increase by 5.8% and a further 7.8% in 2011, allowing hoteliers to push room rates up by around 3.5% to an average room rate of £120.

But the provinces remain "temporarily beached", said PwC, as corporate demand is "dwindling". The provinces are likely to see a growth in RevPAR of just 1.6% in 2010, but 2011 will mean a more solid recovery.

Liz Hall, head of hotels research, PwC, said: "Occupancies should start to stabilise in early 2010 following 11 quarters of decline and room rates are forecast to start recovering from Q2 this year. Growth will be slow but it's not all bad news with some regional centres to buck the trend."

Milbrun warned, however, that hoteliers, both in and out of London, may still face problems. "As trading fundamentals have suffered and property values fallen, many mid-tier UK hotel groups now find themselves in, or close to negative equity, and will need to restructure their debt.

"More generally growth rates are not all they seem to be - any growth is off a low base and comparables are poor. The waters ahead appear calmer, but economic recovery may still falter."

www.uk.pwc.com