What Goes Down Must Eventually Come Back Up – UK Hotels Report Double-Digit Growth

The UK hotel industry has proven to be the strongest performer in Europe in the first six months of 2004, with revenue per available room (revPAR) rising 11 per cent against the same period in 2003. Latest preliminary figures from the HotelBenchmark Survey by Deloitte show that UK hotels have benefited from a balanced mix of rising occupancies and average room rates.

London in particular has witnessed a remarkable comeback given the global events of the last three years. Given London's reliance on international tourism, these have had a greater impact on the capital than on the provinces. During the first half of the year London has seen revPAR rise by 19 per cent. Whilst the level of growth in part reflects the weak performance for the comparable period in 2003, the market has nevertheless begun to see a resurgence in both tourist arrivals and more importantly, corporate business.

Although the industry started to show signs of recovery at the end of 2003, the question now is when a return to the glory days of 2000 can be expected. According to forecasts, hotel performance in the UK provinces is expected to return to 2000/01 levels by the beginning of 2005, with London following suit at the end of 2005.

Any improvement in the performance of the UK hotel industry will be welcome, particularly given that revPAR is a major contributor to profitability levels. Latest figures from the HotelBenchmark Profitability Survey 2003 show that both the UK as a whole and London saw profit per available room fall by three and four per cent respectively last year. However, with revPAR levels now starting to move northwards we would anticipate profit levels to follow, particularly given that a number of hotel operators rationalised their cost base following the downturn in the industry's fortunes.

The relative health of the UK hotel industry has brought with it further developments. Budget hotel operator Travelodge recently announced its intention to capitalise on the strength of the property market by selling its 136 freehold properties and leasing them back, raising around £400 million in the process.

As hotel operators seek to make the most of their assets, so too are investors looking to the hotel industry as a platform to develop substantial property businesses. The newly formed Dawnay Shore Hotels is one such example, having acquired the Paramount Hotel chain for £215 million (approximately £119,000 per room).

In addition to transaction activity, proposed legislative changes relating to the UK's gambling laws are spurring casino and gaming operators into action. Kerzner International is the latest company to announce plans to develop hotels with associated gaming facilities. Locations currently planned include Glasgow and Manchester. The company has also entered into an agreement to re-develop the ill-fated Millennium Dome in London. This development will include a 600-room hotel and casino.

If the proposed 'resort-style' casinos do materialise they could succeed in inducing demand, amongst the leisure and conference segments as well as helping to contribute to the regeneration of their locales. However, as most of the proposed developments are dependent upon key criteria being met as part of the gambling reforms, such projects could be some way off yet.

Clearly the UK hotel industry is moving ahead after a period of prolonged trading difficulties and its position within the European market continues to strengthen.