Hotel market set to slow, but no recession

While growth in the UK hotel market will slow in 2007, a relatively stable economic outlooks means a recession should be avoided, according to analyst TRI Consulting's annual report.

The Hotstats Hotel Report 2007, published last week, predicts that although this year will see a slowing in the rate of growth per available room, it will still outpace inflation, rising by 3.4% in the provinces and 5.6% in London.

Jonathan Langston, managing director of TRI, said despite warning signs of a slowdown such as rising interest rates and unemployment, the market will not crash. "The demand outlook for hotels is not entirely cloud-free but there doesn't appear to be a storm imminent," he said.

The biggest growth will be in the budget sector with the two biggest players, Travelodge and Premier Travel Inn, having announced plans to add more than 23,000 bedrooms to their stock over the next three years, the report predicts.

The key issue, said Langston, was the extent to which these budget hotels would succeed in taking customers away from the mid- and top-tier hotels. He added that this year the weaker, older, underinvested and unbranded hotels were likely to feel much more pressure as the supply of new-build hotels continued.

Hotel consultant Melvin Gold added a further note of caution, warning that while revenue growth was generally positive, the concern should be focused on profitability, especially in the regions.

"While profit growth in London has been seen at over 20%, we must focus our thoughts on the far lower growth seen around the rest of the UK," he said. "In fact, outside London the proportion of revenue converting to profit was lower and this publication rightly highlights, and provides concrete evidence of, the cost pressures that hoteliers are facing."

"Revenue growth, while hot news, is only part of the current story and hoteliers and investors ignore these cost pressures at their peril," Gold added.

Dominic Mayes, head of hotels at property agent Knight Frank, agreed, suggesting that US tourists may shun the UK because of the weak dollar.

"Although London's revpar growth demonstrated a notable improvement over the last year, the strength of the dollar will be likely to restrict that growth over the next year," he said. "We're likely to see further yield compression for quality hotels over the coming year."

By Emily Manson

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