tri 2011 uk hotel market forecast

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TRI Hospitality Consulting – 2011 UK Hotel Market Forecast

June 2011

TRI Hospitality Consulting 2011 UK Hotel Market Forecast

•

Challenging market conditions in 2011 will continue to affect UK Provincial full-service hotels leaving sales growth flat and profits down.

• London sales and profit growth to be tempered in 2011 on the back of aremarkable recovery in 2010.

• But London profit performance to hit pre-recession peak levels of mid-2008.

• UK Provincial and London occupancy, average room rate and RevPAR forecastalso provided by TRI.

• Both sets of forecasts derived from TRI Hospitality Consulting’s unique HotStats

database which tracks monthly hotel revenue, cost and profit performance.

TRI Hospitality Consulting has issued an updated forecast for the UK hotel industryfor 2011 offering a unique insight into hotel market industry profit performance.

"The UK Provincial hotel market continues to face challenging conditions resultingin no revenue growth in 2011. Combined with increasing costs, we forecast profitdecline this year," said Jonathan Langston, managing director of TRI HospitalityConsulting.

UK Provinces

The UK provincial full-service hotel market is set for challenging market conditions as inflation

and the VAT rise will continue to impact consumer spending throughout 2011.

For 2011, TRI Hospitality Consulting forecasts zero growth in occupancy performance, and a

marginal increase (1.0%) in average room rate, resulting in 0.9% growth in Room Revenue per

Available Room (RevPAR) performance.

“2011 will see the impact of tax increases and the rising cost of living on the consumer, which

we believe will result in a decrease in achieved leisure market sector room rate in the UK

provinces. In contrast, data from our HotStats database is showing that the volume and value of

commercial room night demand is increasing when compared to 2010 performance," saidLangston.

"Typically commercial demand is more lucrative for provincial hotels when compared to leisure

market performance, and overall, the increase in commercial demand should at least off-set a

forecasted dip in leisure room night and sector rate performance,” he added.

With well publicised public sector job cuts, CPI inflation at 4.1% in 2011 and market evidence

already suggesting reduced UK consumer spending, TRI Hospitality Consulting forecasts zero

growth in Total Revenue per Available Room (TrevPAR) performance.




June 2011

“Corporate and leisure clientele are on restricted and prudent budgets and are therefore seeking

value for money. The growth of the budget sector combined with current market conditions has

intensified competition, particularly in the mid-market sector in secondary and tertiary provincial

locations. Whilst we forecast marginal growth in RevPAR performance, it is unlikely we will seea market average increase in total revenue performance for the provinces,” commented Langston.

Tempered revenue performance combined with increasing operating costs is likely to result in

continued Gross Operating Profit per Available Rooms (GOPPAR) decline for 2011. With many

provincial hotels having already implemented cost saving efficiencies in 2009 and 2010, TRI

Hospitality Consulting forecasts a 4.0% decline in gross operating profit performance.

London Forecast

TRI Hospitality Consulting forecasts the London full-service hotel market will continue toincrease room rate to the leisure and commercial markets, projecting average room rate growth of

3.4%, whilst occupancy will remain relatively stable given 2010’s robust performance, with

room for marginal growth in occupancy of 0.3 percentage points.

“In 2010, London hotels experienced a significant increase in occupancy and average room rate

performance, sustained throughout the year by an increase in corporate demand and events such

as the biennial Farnborough Festival. In the first quarter of 2011, occupancy performance has

dipped, with London hoteliers pursuing a rate growth strategy to commercial and leisure markets,

further enhancing London market average RevPAR performance,” said Langston.

In 2011, London will not benefit from the demand spikes generated through large events such asFarnborough, and the timing of Ramadan in August this year is expected to affect Summer

demand from the Middle East. Although latest figures from Visit Britain indicate that leisure

demand is forecast to remain robust as the strong growth in overseas visits from BRIC, North

America, and recovering European economic countries will sustain buoyant visitor levels to the

capital. The continuing decline in the strength of sterling versus the euro will boost European

inbound but a weak dollar will temper US tourism to London even though US inbound visitor

levels increased by 5.0% in the first quarter of this year.

The continuing trend of increased commercial demand as a proportion of total market mix, and

increased rate growth to all sectors, result in TRI Hospitality Consulting to forecast furtheraverage room rate growth of 3.0% in 2011 and overall RevPAR growth of 3.4%.

Whist hoteliers continue to raise room rates in the capital, data from TRI Hospitality

Consulting’s HotStats database indicates that the value of additional discretionary spend on non-

rooms related services including food and beverage and leisure services is declining, albeit

marginally, when compared to 2010 performance. TRI Hospitality Consulting forecasts this trend

will continue throughout 2011, moderating TrevPAR growth to 2.2%.




June 2011

TRI Hospitality Consulting projects that subdued revenue growth, rising costs and limited

opportunity for further operational efficiencies in 2011 will lead to GOPPAR growth of 1.1%.

“In 2010, the significant increase in revenue performance, combined with highly efficientoperating cost strategies resulted in London hoteliers enjoying significant growth in gross

operating profit," said Langston.

"In current market conditions where there are challenges for hoteliers to control operating costs

such as payroll with the increase in National Insurance contribution, and other hotel supply chain

costs which have increased in the current inflationary climate, profit growth is likely to be more

restrained this year," he added.

"However, it should also be noted that gross operating profit performance is fast approaching

peak pre-recession levels achieved in mid-2008, just before the credit crunch and subsequentrecession - a strong recovery in under a four-year period,” he concluded.

Note

The forecasts are predicated on the assumption that:

• UK GDP growth will be between 1.5% and 2.0% in 2011.

• CPI inflation will rise to 4.1% in 2011, as per latest HM Treasury forecast.




June 2011




June 2011

Editors Notes:

The hotels profiled in this report are drawn from the HotStats database and reflect the portfolios and distribution of the hotel

chains that we survey and which operate primarily in the three and four-star sectors.

Please note: The data samples are reviewed and rebased each year to reflect the changes in the HotStats survey base.

As a result, performance ratios published last year may differ from those contained within this report.

Occupancy (%) is that proportion of the bedrooms available during the period which are occupied during the period.

Room rate (ARR) is the total bedroom revenue for the period divided by the total bedrooms occupied during the period.

Room Revpar (RevPAR) is the total bedroom revenue for the period divided by the total available rooms during the period.

Total Revpar (TrevPAR) is the combined total of all revenues divided by the total available rooms during the period.

GOP PAR is the Total Gross Operating Profit for the period divided by the total available rooms during the period.

For more information contact:

Jonathan Langston, managing director

020 7486 5191

[email protected]

David Bailey, deputy managing director

020 7486 5191

[email protected]

Charles Scudamore, director

0207 892 [email protected]

Anuraag Badola, managing consultant

0207 892 2206

[email protected]

Services:

HotStats - Market Intelligence Unique to TRI Hospitality Consulting.

Our expertise in the hotel industry is based not only on our experience of working in that industry, but also on a continuous

programme of research which tracks trends and performance. Our proprietary HotStats database is the most detailed ever

monthly survey of the European hotel industry, providing contributors with access to highly focused personalised benchmark data

on every aspect of hotel revenue generation, sales and marketing, operating costs and profitability. For more information please visit

www.hotstats.com.

©TRI Hospitality Consulting 2011

Unless otherwise attributed, all material in this press release is the copyright of TRI Hospitality

Consulting

tri 2011 uk hotel market forecast

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