Luxury hotels enjoy boom in the capital, but budget and midmarket properties lag behind

London's luxury hotel market is booming, with occupancy and room rates hitting their highest levels since 2000, according to key market monitors.

The Bench and Deloitte's HotelBenchmark found that, last month alone, average room rates (ARR) in the capital's
five-star hotel sector soared by more than 10%.

The Bench recorded revenue per available room (revpar) growth of 16% for May, following a 10.7% growth in ARR and 6.6% rise in occupancy rates (see table).

Meanwhile, HotelBenchmark found that a 12 percentage point rise in occupancy, added to a 7% increase in room rates for the first four months of 2006, resulted in year-on-year revpar ballooning 20% to £168.14.

James Chappell, managing director of The Bench, said: "London is on fire, and even though May is traditionally a good time for hotels, this month has been exceptional.

"Hotels have this year seen the biggest growth rates since 2004, when the market recovered spectacularly from the scourge of Sars and foot-and-mouth in 2003."

Analysts say no one factor is driving demand but point to cumulative factors, including the social season and a buoyant London economy, to explain the boom.

Kevin Kelly, general manager of Marriott's Grosvenor Square hotel, agreed business was good: "The City economy is doing particularly well, and it's also a Farnborough air show year, which always seems to help."

However, Deloitte hospitality manager Marvin Rust warned that budget and midmarket hotels were struggling to raise rates at the same pace, leading to increased polarisation between the sectors.

"More modestly priced hotels are struggling to lift rates in a market where price is arguably the predominant factor for customers," he said.

"This is consistent with what is happening in the UK regions, but on a much more dramatic scale."

David Hornby, commercial director of Visit London, concurred: "For the international luxury market in London it's now as good as pre-2000. But for operators in the budget and domestic markets there is still room for improvement."

By Emily Manson

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