The recession has made the London hotel scene an unpredictable place to do business, says Catherine Chetwynd.
OVER THE NEXT 12 MONTHS the hotel market in London could prove to be as volatile as an Icelandic volcano, if industry experts are to be believed. The stuttering economic recovery means negotiating a room rate with a supplier could be as straightforward as securing a price for a watch in an Egyptian bazaar. Furthermore, the number of rooms coming on-stream during the run-up to the Olympics will flood the city with extra capacity, especially at the five-star end of the market. Throw the public sector cuts and predicted currency value fluctuations into the mix, and you have the ingredients for total confusion.
"We need a crystal ball," jokes Margaret Bowler, director of global hotel relations for travel management company (TMC) HRG. 2010 was "the year of change" for the London hotel scene, she says. But after a long, hard tendering season in the third quarter of last year, a bad start to 2011 has thrown a spanner in the works. HRG's own figures revealed that hotel rates and occupancy levels for London in January remained flat year-on-year, and that was against a month when snow brought parts of the UK to a virtual standstill for almost a fortnight.
"It has shocked a lot of hoteliers," says Bowler. "They were looking to get [rates] back to 2008 levels, which for many corporates meant enormous rises in cost. But January hasn't been good and we are already seeing a lot of revised pricing going on."
Bowler said there was no doubt that the overall feeling in London was far more optimistic than when bank failures strangled the economy and led us into recession. And interestingly, the cost-cutting legacy left by the credit crunch means corporates are far more switched on to the 'hotel' aspect of their travel programmes.
Head of UK hotels and venues for PricewaterhouseCoopers (PwC) Samantha van Leeuwen bases the running the firm's hotel and meetings programme on ongoing relationships.
She says: "A lot of hotels in 2007 and 2008 hiked rates and they came off our programme. Suddenly, when the recession hit, we had them knocking on our door. We didn't use them - we worked with those that didn't hike tariffs.
"Rates are definitely going back up - hotels want 8 to 14 per cent. That is not what they get but we have had to pay more and are already seeing availability at those rates being quite tight. We try to make sure the rate guarantees availability.
We will have to watch hotels in 2011 - some revenue managers are getting greedy, especially in Canary Wharf, where the banks are back big time. We had to remind them who kept them going during the bad times."
Like PwC's Van Leeuwen, Bowler says the city's financial districts have seen rates hold strong, but in other areas her TMC has been selling hotels' distressed inventory. "They have holes to fill. It's been quite interesting."
Van Leeuwen tries to get free wi-fi, and food and beverage discounts included, but she notices that properties are now taking away added value and bringing in a minimum number of nights' stay and early check-out fees. "There are ways around it: before the guest arrives, for example, book four nights but cancel two - but this does put another step into the process."
Is the market likely to settle in the short-term? Well that depends, says Bowler: "If February picks up, maybe we'll see steadier rates. It's all about supply and demand. We are just advising hotels to be sensible with rates, because corporates are still being tasked to make savings. We could end up with a scenario like 2009 [following the Q3 RFP season in 2008] when rate negotiations were just continuous."
Nick van Marken, Deloitte global head of advisory - tourism, hospitality and leisure, said 2010 was a strong year for the London market for both investment and demand.
"There was an effective discount of sterling against the euro and the dollar, and hoteliers were able to take advantage of that," he says. "RevPAR [revenue per available room] was up nearly 12 per cent across the market and London is starting to look attractive to emerging markets, such as India and South America - the British Airways/Iberia tie-in will help that.
"There is no shortage of demand and, with pricing power on the side of the vendor, London hoteliers are going to be focused on holding and driving rate, and they will displace the lower priced leisure segment in favour of a return to corporate where they can."
In some corners of the market there is the belief that last year's higher occupancies and increased RevPAR over the past year will give suppliers the upper hand during negotiations.
The Royal Garden Hotel in Kensington is the preferred supplier to around 50 per cent of its business guests and they get a fixed guaranteed rate. However, its director of sales, Mark Anderson, says dealing with a purchasing manager who is focused on price is often difficult. "We will keep price increases to a minimum but want to keep offering good service," he says.
At the other end of the spectrum sits Best Western, which says its preferred supplier arrangements are based on trust. "We get an idea of how many room-nights are available for the area and ask each hotel to provide the best rate for the business," says Best Western's director, Stuart Kingsley Smith. "We contract the rate but not the number of rooms and hope to get business on the basis of the service provided."
RevPAR for Starwood's central London hotels went up by 16 per cent last year and the group was looking to raise prices this year. "Preferred supplier status operates by city and we give preferential rates in return for certain volumes of business," says Starwood's Michael Wale.
"We do last-room availability and although we have run at more than 80 per cent occupancy, there are no black-out dates. Preferred status has to be mutually beneficial - corporates give the right price point and volume, and we give those things back in return. Last room availability has a price attached to it."
Wale says rate negotiations were "interesting", trying to balance buyers' requirements to preserve their budgets with Starwood's desire to raise rates. "We are seeing a 4 to 5 per cent lift in price across corporate rate negotiations," adding "we wanted more."
Properties and products
Five Premier Inns will open in London in the next two years, and Travelodge is extending its Drury Lane property by 249 rooms and redeveloping the site, as well as opening hotels in Ealing and Bank. The budget sector continues to develop with newcomers such as a hotel with pod-style rooms, scheduled for The Trocadero on Piccadilly Circus; and the no-frills Tune Hotel on Westminster Bridge Road, which entered the market last year, with plans for three more properties, including one in the Liverpool Street area.
Best Western has 17 hotels in London, including two newcomers: The Cromwell, Kensington, which recently combined with the adjacent building and re-emerged as an 85-room, three-star hotel; and The Mostyn, near Marble Arch, which enjoyed a full refurbishment that earned it four AA stars.
Mint, the renamed four-star City Inn group, has launched Mint Hotel Tower of London with 583 rooms, a rooftop lounge containing meeting rooms, a bar and two roof garden terraces.
Elsewhere, Premier Inn is opening hotels over the next two years in Greenwich, Islington, Wandsworth, Leicester Square and Stratford, the closest hotel to the Olympic Park. Franklin Hotels will manage a property at 10 Trinity Square; Sol Melia's designer ME brand opens on the Strand; and Montcalm London City Hotels is to take over the former GuestInvest site in the Barbican.
At the top end of the market, the Corinthia will join the recently reopened Fairmont Savoy and Four Seasons London at Park Lane later this year. Other luxury openings include a Shangri-La in The Shard at London Bridge; Bulgari's planned hotel in Knightsbridge; Dorchester Collection property 45 Park Lane; W London - Leicester Square; W's near-neighbour The St John Hotel; and the St Pancras Renaissance.
A £5 million renovation at London Hilton on Park Lane updated 130 executive rooms with electric blinds, walk-in showers and new desks and chairs.
InterContinental Hotels Group is adding just over 1,000 rooms in London over the next two years, including the InterContinental London Westminster, Hotel Indigos London Kensington and Philpot Lane, Holiday Inn and Staybridge Suites in Stratford, and Holiday Inn London Commercial Road. In addition, Crowne Plaza London - The City is refurbishing its 203 bedrooms.
Wyndham Grand London Chelsea Harbour recently opened a spa and has unveiled a new restaurant, TwentyTen, which will host a series of guest chefs.
Meanwhile, Guoman Charing Cross is undergoing a £2.5m transformation to its Buckingham Wing, with the 85-bedroom VIP Executive Wing acquiring a dedicated check-in reception desk and concierge service. It is due to be completed in February 2012.