UK hotels are over the worse, says PwC

The UK hotel industry is over the worst of the recession, according to the latest report PricewaterhouseCoopers LLP (PwC).

Its UK hotel forecast predicts that growth rates will deteriorate further before Christmas but the speed of decline should begin to slow in the New Year.

The report predicts a fall of 12.1% overall in RevPAR (revenue per available room) this year, slowing to a 2.4% decline in 2010.

“While domestic and overseas leisure tourism has been a tonic for UK hotels, the stark absence of corporate travel has left the sector severely weakened,” said Robert Milburn, UK hospitality and leisure leader.

“Overseas visits are down 9% and air travel is expected to contract further, making the return of the business and conference markets critical for a full recovery.

“We last saw a room rate fall of this magnitude (8.1% in 2009) in 2002 when rates fell almost 6%.

“While rate declines will slow at last, economic and travel fundamentals remain weak and, despite accelerating cost cutting programmes, the evidence points to more savage trading at the end of the year. Rate declines will ease in 2010 but we foresee no RevPAR growth in any quarter over the year.

“Rooms rates have become the sacrificial lamb in the battle for occupancy, and keeping rates low will continue to make it easier to attract last minute custom. It is a delicate balance and we are not out of the woods yet but, as the economy starts to stabilise, the path has at least become clearer.”

In London, occupancy is expected to remain high at around 79% for this year and next, a drop of only 200bps from the peak in 2007.

Room rate declines will halve next year while occupancy returns to growth after two years.

“Despite the spending cutbacks in both the corporate and leisure sectors, London remains a must-see destination for both UK and global travellers,” said Milburn.

“Visitors are keen to take advantage of this lower priced London as the City slid from second to 22nd in the league table of the World’s most expensive destinations. But it remains to be seen how long these hotels can afford to offer such attractive rates.”

Liz Hall, PwC head of hotels research, added: “Average room rates in London have been rising for five consecutive years. Now a room will cost £10 less than in 2008 and could cost £20 less by the end of next year.

“This might be good news for visitors but not for hotelier profits as London saw RevPAR slide by 9% in the first half of this year, compared with the same period in 2008.”

By Bev Fearis