helicopter view.

05 Dec, 2017

London: One Of The Best Place To Grow

London: One Of The Best Place To Grow

London saw RevPAR declines in nine months in 2016 but latterly saw a dramatic rally which has continued into 2017. Positive economic growth and the weak pound should help boost travel demand and we forecast RevPAR growth of 3.3% in 2017 taking RevPAR to £120, driven by a 2.4% ADR increase. After two consecutive years of declining growth, we anticipate a 0.9% increase over 2016, keeping occupancy high at 82%.

Role

London is the largest urban area in Europe, a mega city and one of the world’s largest financial centers. It leads in many fields and global business clusters. It is a leading destination for international tourism.

Historical trading

What a difference the last two months of 2016 made to London’s hoteliers. After a largely dismal year, December marked London’s highest year-over- year RevPAR growth since the 2012 Olympic Games, according to STR Global data. We didn’t anticipate such a sensational finish in London. While the end of year flourish is partly a reflection of the impact of weak comparable following the November Paris bombings in 2015, it also reflects the positive impact of the weak pound and better than expected GDP growth.

Supply trends

For 2017 around 8000 rooms could open in the capital. If all open (and often this is not the case as opening dates slip) this will mean a 5.8% increase over 2016. This is practically double the figure added in 2016, according to AM: PM. This will make it a challenge to fill all the new rooms but with a high proportion of the new rooms being branded budgets, with a large domestic customer base, existing non-budget operators should still be able to benefit from stronger demand driven by the weak pound. For 2018 there are already around 5000 rooms set to open, meaning potential net growth of 3.7%.

Opportunities

Continued economic growth post the Referendum vote remains a positive factor underpinning business and holiday demand. The weak pound has made the UK more affordable for inbound tourists and at last appears to be making an impact on the number of holiday visitors to the UK from abroad with growth coming from America in particular as well as Europe. In 2016, London saw its second highest summer period on record.

In terms of outlook, the World Travel & Tourism Council (WTTC) as well as the Global Business Travel Association are generally positive and forecast more travel growth for key European countries. VisitBritain’s forecast for inbound visits for 2017 is also positive with an expectation for 38.1 million visits, an increase of 4% on 2016; and an 8% increase in spending.

In terms of downsides, it’s unclear how the Brexit negotiations will play out; how long the beneficial effect of the weak pound may last; and while holidays remain a top priority for UK consumers it’s worth noting that they are easy to cut spending on given their big ticket nature; terrorism continues to cast a potential shadow over many major European cities including London; a lack of events won’t help either but 2017 will see the ICC Cricket Champions Trophy, the World Athletics and Para-Athletics Championships as well as Cardiff hosting the UEFA Champions final in June.

2018 forecast

UK economic growth held up better than expected immediately after the Brexit vote, particularly as regards consumer spending and services with 2016 seeing average GDP growth of around 2.0%. We expect UK GDP growth to slow to around 1.5% in 2017 due to the drag on business investment from increased political and economic uncertainty following the Brexit vote, and 1.5% in 2018 as Brexit negotiations become clearer.

The positive economic outlook for the UK and most Eurozone countries, in combination with a weaker pound, is likely to benefit London. However, the performance of the market is also highly dependent on how key geopolitical issues including the Brexit negotiations play out during the year.


Read also: Emerging Trends in Real Estate in Europe 2017 and beyond, European City-hotels In 2017 and 2018, European Hotel M&A Trends for 2017, European Hotel M&A Activity in 2016

Know more about best places to grow: Amsterdam, Barcelona, Berlin, Budapest, Dublin, Milan, Lisbon, Madrid, Frankfurt

7 Future Cities of the World


blog picture

16 Apr, 2018

M&A Deals Could Reach Record Level in 2018

​Mergers and acquisitions bankers could see a record year for activity, with more than two-thirds of large companies globally expecting to complete more deals this year than in the previous...

read more
blog picture

13 Apr, 2018

India Declares M&A Deals Worth $18.53 bn in Jan-March

During the quarter, domestic M&A values recorded a whopping 5.3 times increase year-on-year...

read more