London set for 150,000 hotel rooms by 2020

10 October 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 were marginal declines in occupancy and ADR until June, mainly due to a strong basis of comparison with last year. However, July and August brought about a marked change in fortunes with year-to-date RevPAR moving into positive territory.

Summer heats up

Hotel performance during the summer months, boosted by favorable exchange rates, an unseasonably warm summer weather as well as a series of major concerts, saw RevPAR increases of 8% per month for July and August.

Growth during August recorded an 8.3% increase in RevPAR brought up by equal parts occupancy (+5.7%) and ADR (+2.5%) growth. Business was again helped by the weather, special events as well as increased visitation during the school holidays.

With Ramadan taking place earlier in the year, visitation from the Middle East increased and further drove London’s summer performance.

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.