London and the rest of Europe
In terms of hotel markets, people often refer to London as a country within a country - there is London and then the rest of the UK. In the current climate it could be said that London is even more influential of a continental scale. Is London a continent within a continent?
Certainly London has the largest hotel room count in Europe and consistently achieves a very high average annual occupancy (averaging more than 77% per annum since 1970). London hotel tariffs also tend to be the highest in Europe and as a consequence they achieve a GOP per available room that is the envy of most cities in Europe.
High GOP levels equate to high values, which in turn attracts investment and funding. However, these drivers are not the only factors behind the formula that is underpinning London's impressive development pipeline.
Recent pipeline statistics suggest that there are nearly 6,000 hotel rooms in construction in the capital today, many of which are five-star projects. This is by far the largest pipeline of any city in Europe and lies in third place behind the remainder of the UK and Russia on a country scale. For the statistic lovers, nearly 5% of the total European pipeline (including projects in development and those still in planning) is already in the ground in London.
Other factors behind London's current gravity defying growth spurt include:
- Consistently strong performance levels over recent years, despite the economic crisis, and continued strong growth in 2011 (with RevPAR already ahead of last year by more than 8% year-to-date May 2011).
- Strong future demand growth prospects. With market occupancies consistently in the low 80's, London hotels are virtually full year-round, which would suggest that there is a significant volume of frustrated demand that could absorb new supply.
- The low value of sterling has stimulated demand from Europe and makes London an attractive destination for tourists and investors alike.
Provided London retains its status as a global city, both as a commercial centre and a creative leisure destination, London should be capable of absorbing all the new hotels under development (representing an increase of circa 5% in total supply). The key, identifiable and realistic, risk to the winning formula will be a sharp increase in the value of sterling.
What of the 2012 effect? We believe that London is big enough to effectively absorb the Olympic effect in its stride. That said, if the legacy for the Olympic complex should fail (as in Athens), then any new hotels built around the park could be in for a rougher ride that the more established parts of London. As continents grow there is always the risk of seismic activity around the edges.