An Open Letter to Santa from Tim Smith, director at HVS, on behalf of the UK Hotel Industry
Dear Santa,
Do you judge how good we’ve been in absolute or relative terms? If it is the former, hotel performance, both in London and many of the regions, has been strong and steady for most, but not all of the year. If you review the year relative to other industries, I suspect it has been a stellar performance. According to data to the end of October published by STR Global, rooms revenue per available room (RevPAR) was up 5.3% for the whole of the UK. That included a 1.7% increase in occupancy and 3.6% in average rate. The only market (out of 24 sampled) with a lower level of occupancy year on year was the hotels at Gatwick Airport. 13 markets saw average rate fall, but overall only seven saw a drop in RevPAR. London had another good year with 83% occupancy (again) at an average rate of £133, showing RevPAR growth of 9.7%.
This year we have also learnt some harsh lessons; the Royal Wedding taught many hoteliers not to overprice their rooms, even for special events. Rather than being full, central London hotels only enjoyed around 60% occupancy that weekend, as they misjudged the appetite for expensive rooms. It is a lesson that will be tested again next year during the Queen’s Diamond Jubilee and the Olympics.
No-one is safe from the recession, however big they are. Von Essen was a major victim this year, but alas I doubt it will be the last. The good news is that the majority of the hotels affected are well on their way to finding new owners. Proof, if ever any was needed, that it is more often the corporate entity rather than the hotel that fails.
It has not all been bad news and forced sales. The sale of the Mint portfolio to Blackstone represented a great deal for all parties (including Hilton who will manage the hotels), which brings to mind our first wish for 2012: a few more open-market transactions with realistic buyers and sellers. If more information was available, valuers and investors would have more confidence in the market and be able to act with a level of certainty they have not enjoyed for the past few years.
2012 should be a year of celebration with the previously mentioned Queen’s Jubilee and Olympics leading the pageantry and the biennial Farnborough Air Show also swelling the demand for hotel rooms in the run-up to the Games. The second wish is for hugely successful celebrations for the Jubilee and the Olympic (and Paralympic) Games. The country needs that feel-good factor and what could be better than national pride? As the Royal Wedding admirably showed, we do pageantry brilliantly in this country and this was a wonderful way to advertise the best of what London – and the UK as a whole – has to offer. We look forward to welcoming visitors from across the globe and showering them with wonderful British hospitality.
What the hotel industry needs more than anything is bank debt. The debt is needed in three main areas: to fund transactions; to enable businesses to grow, increasing business and MICE demand at hotels; and to fund the long overdue refurbishment and/or repair of many hotels.
One last request is that the sterling remains competitive against the euro so more people can afford to visit the country. Without these visitors, the problems we face would be that much bigger.
In summary, all I ask for on behalf of the UK Hotel Industry is a return of debt funding, economic stability and confidence, and for hotel vendors and purchasers to be more realistic in their expectations. This will kick-start the investment side of the industry and provide a boost to the trading performance of those hotels continuing to struggle. Is it really too much to ask?
Thank you and Merry Christmas
Tim Smith
About HVS
HVS is the world's leading consulting and valuation services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 4,500 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of over 50 offices staffed by 300 experienced industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com.
