Will the vast increase in London’s roomstock mean cheap hotel deals for buyers after the Olympics? Don’t hold your breath...
ONE BIG SELLING POINT that swung the 2012 Olympics London’s way was the legacy it will give to the capital, particularly the run-down eastern parts – primarily Stratford – in which the main venues are contained.
Anyone baulking at the price of a room in London will also have hoped for another legacy – that staying in the capital becomes affordable due to the swathe of hotel openings that 2012 will see. This year brings an unprecedented number on the back of the Olympics, a period which has coincided with the nationwide advance of the budget hotel chains.
According to the British Hospitality Association (BHA), since 2002, 166 hotels have opened in the capital, of which 74 have been midscale properties. The peak until 2011 was 2004, when 24 opened. Last year saw 28 properties with 6,800 rooms come on stream, more than half the total of almost 11,900 across the UK. Some of these were re-openings, such as the re-branding by Mercure and Doubletree by Hilton of existing properties, but the majority were new builds, among them 1,054 rooms from Premier Inn and 919 from Travelodge.
A bumper year
But this is nothing compared to what is happening in 2012. The BHA’s estimate is that 61 new hotels will open in the Greater London area. London’s crop includes luxury brands like the Bulgari Knightsbridge and new names like ME London, a Meliá development in the Strand. However, the list also includes 21 Travelodges and another 12 openings from Premier Inn and the Holiday Inn brands.
Together, these add more than 9,400 rooms to the capital’s inventory, an unprecedented jump in capacity.
In hotel terms, Stratford may be the new Chelsea – Chelsea, Lower Manhattan, that is: an up-and-coming area with good transport links. During the Olympic period, though, there are rates here more akin to those found in Chelsea, West London. A night in the Travelodge Stratford, near the Olympic Park, on July 21, was £99.95, when searched in March. A booking for a week later, when the games begin, means it soars to £252.57.
Other sources confirm the price hikes and underline that it is not a time to be organising business meetings. Hotels.com puts the average price of a room during the Games at £213 a night, a 102 per cent increase year-on-year, compared with a worldwide 4 per cent average increase, while reservations technology firm Travelclick estimates rates are up 118 per cent during the Games.
It is currently a seller’s market and will remain so from July 27 until September 9, when the Paralympics end, but what happens once the spectators have gone home and the unlikely pairing of hotels near Heathrow and tickets for the weightlifting at Excel ceases to be a premium sales opportunity?
West Side Story
New York provides us with some guidance, but with a few caveats. In the 20 years to 2006, New York’s hotel inventory expanded annually by only an average 1.1 per cent. Then began a major hotel building programme that saw the city’s stock expand by 2.7 per cent in 2008 and more than 5 per cent every year since. In total, New York’s room stock has increased by a huge 24 per cent in the five years to 2011. Between now and 2014, the city is poised to add another 6,200 rooms, a further 7 per cent increase, which will bring the city’s active inventory to 96,000.
In this boom period, 40 per cent of the openings were outside Manhattan, a total of 7,500 rooms in areas like Queens and The Bronx. The boom is not over yet, as New York anticipates 36 openings in the next 30 months.
There is clearly demand, as the city’s 2011 average occupancy rate of 85.3 per cent shows, but the average room rate is still lagging behind pre-recession level. How much of this is due to the recession hangover and how much from the new capacity coming online is debatable. “A lot of these are still very new, so the overall cost of a room night hasn’t yet been brought down, but the average cost is still considerably cheaper than it was in 2008,” says a spokesperson from NYC & Company, the city’s official marketing organisation.
Buyers can be forgiven for hoping that the rash of new openings in London, which will put New York’s projection of 36 in 30 months into the shade, will bring down rates once Olympic flame is extinguished.
In demand
Don’t hold your breath, however, if you heed the views of those who know the market. Robert Flinter, general manager of Apex City of London Hotel, has worked in the capital for 12 years. He believes demand will continue to grow as we come out of recession and points out that London is more accessible than some comparable cities.
“The feeling is that next year London won’t suffer the same post-Olympic slump that other cities did because it is so accessible,” he says. Any drop in rates, he believes, will only come if a new West End premium property starts to buy its way into the market, but he adds: “I don’t believe the market will go that way.”
Flinter concedes some properties might offer room for negotiation because of the increased supply, but only in return for a bigger share of a buyer’s spend. Nor does he believe the budget sector’s explosion will have a huge impact on business rates, which he adds have been largely flat since 2008. “You can’t say: ‘I want a cheaper rate because there’s a Travelodge opening next door,’” he says. “I’m not going to compete in that market, but some hotels might be forced to add in free wifi or food and beverage discounts to make the package more attractive.”
Another London veteran, Stuart Johnson, manager of Mayfair’s Brown’s Hotel, believes there will be no ripple effect of the expansion at the lower end of the market because of the chasm between these properties and the full-service sector. “Clients want value for money, but they also want the quality and the service in line with the business they are doing,” he believes.
Johnson, however, does predict a dip in rates immediately after the games. He, like other canny hoteliers, has taken steps to alleviate this, signing several blue chip clients on two-year deals early this year. “Already we have a good business group base for September. We are ahead of last year, which shows that people are planning for before and after.”
From a procurement perspective, ATPI chief operating officer Peter Muller is not optimistic that London’s hotel building boom will benefit him. “While there have been a number of hotel openings in time for the Olympics, this is extra capacity that London desperately requires anyway,” he says. “We expect hotel rates to slowly return near to the pre-Olympic levels once the games period is over, although demand will remain strong.”
Muller predicts some deals to be had early in 2013, but with demand pushing up prices as the year progresses.
So enjoy the games this summer, but don’t expect any medals for buying cheaper rooms afterwards.