05 Dec, 2017
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%.
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.
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.
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%.
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.
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.
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