London’s luxury legacy

Top end hotel supply has been streaming onto the capital’s market in recent weeks, including London Syon Park, a Waldorf Astoria hotel; W London Leicester Square and Four Seasons Hotel at Park Lane. The trend will only accelerate throughout 2011. A five-star Corinthia Hotel, Marriott’s St Pancras Renaissance London and 45 Park Lane are also in the pipeline this year. All these offer top conference facilities.

Tourism board Visit London expects the Olympic and Paralympic Games to attract 10m visitors during its 27-day programme. The 34 corporate sponsors of the Games are expected to bring up to 10,000 guests each.

The Oxford Economic research predicts the 2012 Games will generate tourism gains for London of £1.85bn.

According to new analysis by PwC, there could be a 27 per cent increase in luxury rooms in London by 2012, with 2,400 rooms in 18 hotels under construction.

The international consultancy argues that if hoteliers have a good business case for refurbishing, building or operating in London, they will want to showcase their hotel to the world during the Olympic Games.

The quest for higher profits is seeing the emergence of a higher suite-to-room ratio in some top properties. The Four Seasons on Park Lane reopened with fewer bedrooms and more suites. Its suite-to-room ratio is 31 per cent (192 bedrooms and 45 suites).

London gateway status seems also to have encouraged investors to enter the luxury sector, despite barriers to entry being high.

Trading remains strong, according to PwC, whose Head of Hotel Research, Liz Hall, says that while absorbing the new rooms may not be too much of an issue in central London, post-Olympics it may be more difficult for sites further out of the central tourist and business districts.

“Luxury hotels are often the most volatile and cyclical of all hotel segments and the first to take a dive when times are bad, due to a high cost base and high service levels,” she says. “It’s difficult to reduce the cost base without devaluing the brand. On the other hand, they are susceptible to a rapid recovery when times are good, as we are starting to see in London.”
Could this new supply in London have a halo effect or pose a threat to existing operators?

“Many of the hotel operators we have spoken to did not expect to see a significant negative impact on revenues as a result of the new supply opening, although some admitted a 27 per cent increase will impact trading,” says Hall.

Some of those hoteliers canvassed by PwC believed that the reopening of iconic hotels such as the Savoy would provide a positive halo effect, ensuring London continues to compete with the other major cities in the top end market. “Demand should strengthen as the Olympics near but hotels will have to be pro-active with their marketing,” warns Hall.

London’s luxury room rates averaged at £254 in 2010, compared to £228 in the same period in 2009, which compared to an average of £127 for all London hotels.* However, some hotels including those in the very elite ‘super-luxury league’ will have enjoyed much higher rates, the research claims.

Hall says the PwC research shows many luxury hotels have seen strengthening of demand at the start of 2011, although short lead times still remain a key feature and trading can be volatile.

PwC says the expected Olympic bonanza may not be quite as large as many hoteliers hope and warns public sector cutbacks may yet spoil the events party and a large supply stock cause a post 2012 hangover in London.

  *Source STR Global

Paul Colston

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Paul Colston

Managing Editor, Conference News & Conference & Meetings World.

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