UK budget hotels to benefit from credit crunch

The UK hotel industry is in a strong position to the weather the current global economic storm following had an impressive 2007, according to a new study.

The performance in 2007 rounded off a period of robust growth in the industry over the last few years.

While the UK hotel industry may see slower growth in 2008, strong investment and new concepts will shape and drive the UK hotel market.

Budget hotels look set to benefit as consumers are forecast to tighten their belts and spend less, said Robert Barnard, hotel consultancy services partner at accountancy film PKF which produced the report.

The budget/tourist hotels saw the largest rooms yield growth in 2007 in both London and the regions. In the capital, rooms yield growth was 11.6% while the regions experienced 4.3% year-on-year growth.

Barnard said: “The variety and key product quality invested into the budget sector may be a key driver for a positive performance in the UK hotel market.

“Continued investment within the industry will ensure interest in UK hotels; however, the economic forecasts predict lower consumer spending due to the credit crunch and a slowdown on the housing market.

“With consumers becoming more price conscious, it will be difficult for hoteliers to increase average achieved room rate (AARR), and with good occupancy levels already being achieved, demand only has room to grow slightly. This may result in small occupancy and AARR increases to push rooms yield up.”

He was speaking at the launch of the Hotel Britain 2008 guide to the performance and prospects of the UK hotel industry which reviews the performance of 644 hotels representing more 100,000 rooms.

Last year saw the hotels sector achieve consistently high occupancy and AARR levels with London reaching record-breaking levels.

Occupancy reached close to 83% in the capital over the year and this strength of demand for rooms meant AARR was pushed up.

The average room rate increased 8.9% to £130.17 and this meant rooms yield increased 10.3% to £107.96.

These figures are the highest the capital has seen since PKF started collecting data in 1974, while occupancy was the highest since 1997.

Hotels in the regions had a good year with steady increases in AARR over the year, the main driver behind the 3.0% rise in rooms yield overall.

Aberdeen, Edinburgh and Glasgow all reported exceptional results. Overall, increases in both AARR and occupancy combined to drive a 6.9% growth in rooms yield.

*Hotel Britain 2008 costs £300 via PKF’s website at http://www.pkf.co.uk/pkf/pub/General

By: Phil Davies