London: 150k rooms by 2020
1 August 2018
As a global financial hub and major tourism destination, the U.K. capital continues to expand. This holds especially true for the city’s hotel sector, which continues to see rapid developments in inventory.
Long-term supply growth
The end of 2017 marked a 28.9% increase in hotel room inventory over 10 years. The 2012 Summer Olympics led to a major ramp-up in supply development, which generally sat between 0%-2% in years prior. In 2011-2013, supply growth hovered between 3%-4.5% each year.
Even with continued expansion, the city has maintained considerable performance growth in recent years, showing resilience through terror attacks in 2017. In H2 2017, the ‘Brexit effect’ started to wane for London hotels as the pound climbed back in value against the dollar. Despite strong foundations in both corporate and tourism business, there is still uncertainty for what the future holds even two years after the referendum vote.
This year, there have been marginal declines in occupancy and ADR, mainly due to a strong basis of comparison with last year, when the market posted consistent growth through July. This year, supply growth has generally outpaced demand growth from month to month.
Summer heats up
June 2018 marked London’s first occupancy increase (+2.3%) for any month of the year so far, boosted by unseasonably warm summer weather as well as a series of major concerts.
Growth was even stronger in July, with an 8.5% increase in RevPAR brought up by equal parts occupancy (+4.0%) and ADR (+4.3%) growth. The actual ADR (£171) and RevPAR (£155) levels were London’s highest for any month on record, even topping July 2012, which included the opening days of the Summer Olympics. Business was again helped by the weather, as well as popular events including Wimbledon and London Pride.
Looking ahead
London remains an investment hot spot, as supply growth is set to continue. According to AM:PM, over 11,000 new rooms are set to join the market’s existing inventory by the end of 2020 - bringing London to 150,000 hotel rooms. In the current pipeline, the largest developments are in the upscale, upper midscale and economy classes. Occupancy is expected to dip slightly over the next three years as a result of this supply growth, but the market should continue seeing rate-driven performance growth.
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