Increase in luxury rooms poses challenge for London hotel sector

There is currently around one third more luxury hotels in London than there were in 2005. Since then just under 4,000 more luxury hotel rooms have opened in the capital. In 2005 there were some 11,430 luxury rooms in London compared with 15,220 this year. Indeed, five-star properties now represent some 12 per cent of all the rooms available in London.

The London 2012 Olympic Games was obviously the factor that drove for the expansion of luxury rooms at a pace which is unlikely to be repeated any time soon. Nevertheless, until now, the increase in capacity of luxury hotel rooms has not been accompanied by any fall in the rates of these rooms. Indeed, there has been an increase of 23.6 per cent in the average daily rate which was £239.38 in 2005 and which rose to £295.78 during the first eight months of this year. This actually represents an increase of some £101.95 in nominal terms. In the same period there has also been a 36 per cent increase in revenue per available room from £165.29 to £225.05. Occupancy levels in the capital’s luxury hotels have also risen 10.8% over the last seven years from 60.1% in 2005 to 76.6% up until August this year.

Liz Hall, head of hospitality and leisure research at PricewaterhouseCoopers (PwC) outlined the challenge for the luxury hotel sector in London moving forward: “Looking at recent performance, luxury hoteliers tell us “so far so good”, she said. “In fact luxury has outperformed expectations in the 10 months to October and is holding up well, especially given all the extra supply. But it’s still hard to feel confident about 2013; there will be winners but a weak economic and travel environment, a fight for market share and more new rooms to fill mean many will feel the hit. However, operators are positive about London’s prospects and are encouraged by the global awareness of the capital as a destination and the on-going improvements in infrastructure. With no major events taking place in London in 2013, the question is, where will demand come from? Will it be post games global awareness, emerging market visitors and the proposed new streamlining of the Chinese visitor process? London’s luxury hotel sector has a challenge on its hands. But the city is a global gateway with increased global awareness after the 2012 Games and continues to compete well with the other major cities in the world when it comes to top end hotels.”

It will be interesting to see if London’s luxury hotel sector can maintain the recent level of success in the post-Olympic scenario presented by the New Year.