London hotels vulnerable during the credit crunch

Hotels located in London may be able to charge the highest premiums but they are also proving to be more vulnerable than their counterparts during the credit crunch, one expert has said.

According to PricewaterhouseCooper (PwC), London hotels are more dependent on the financial sector and thanks to the decline in this area of business upscale hotels are now fighting for custom.

The audit firm's November revenue per available room (RevPAR) figures showed a fall in the UK hospitality sector – RevPAR is the amount of revenue generated by room sales divided by the amount of rooms available for sale in the time period.

The study found that the RevPAR for London hotels is set to fall by almost 12 per cent in 2009. Furthermore, PwC predicts that the economic slide will take London’s RevPAR (the industry’s benchmark) from £94.28 in 2008 to £82.92 in 2009.

UK-wide, the hotel industry should see a 4.3 per cent RevPAR decline as room rates fall for the first time since 2003, indicating that the hospitality sector has been hard hit by the credit crunch.

Liz Hall, head of Hospitality& Leisure Research at PwC, said: "London went up in price and was doing really well because it is the centre of everything.

"[But now] it is quite vulnerable and there is a sharper correction coming its way but also because it is based on financial services. It's got a lot of upscale hotels and there is a lot more competition there as they are fighting for the same business."

She added that the situation could get worse if hotels start lowering their prices to be more competitive.

"If one of the hotels start discounting, then they all have to start discounting," the expert explained.

Research conducted by STR Global's RevPAR report on hotels in the UK, published November 2008, also painted a fairly dim picture for the hospitality sector.

Results from STR Global showed a sharp drop in RevPAR for the UK from October through the beginning of November. It found that the UK hotel market has been following the global trend of declining occupancies and growing rates for the first nine months of 2008.

September was the first month in which London reported RevPAR declines resulting from a fall in average rates. The capital reported RevPAR of £121, down 6.5 per cent compared to the same month in the previous year.

However, Liverpool reported a 16 per cent RevPAR growth to £56 compared to the same month in the previous year. This may be related to the fact the city has been the European Capital of Culture throughout 2008, which may have been a pull for tourists.

Liz Hall added that the budget hotel market in London may be more resilient that the upscale hotel sector.

She said: "We are getting reports that some parts of London like the West End were not doing too badly but towards the City, there have been a lot of cancellations.

"They are high end users of hotels, people are not staying so much and downgrading them to cheaper hotels because of good PR and costs."