LONDON-As the 2012 Summer Olympics begins here Friday, the city has seen a massive build-up of hotel rooms, and of rental rates, with some questions how the increase will be sustained once the games end this fall.
The city has about 112,000 hospitality units, including hotel rooms, guesthouses and serviced apartments. In the past five months, London added about 2,000 rooms, and another 5,000 rooms are due to open by year end.
London has been the stalwart of the struggling Europe, with most commercial properties still going strong in the perceived core market, and hotels are no exception, so it’s hard to judge by how much the Olympics have improved upon demand. That there is increased demand is certain, says Jon Hubbard, CEO of Jones Lang LaSalle Hotels. With an estimated 300,000 additional foreign visitors for the games, there’s expected to be a 60% to 70% increase in average daily rate, compared to the same period in 2011, he tells GlobeSt.com.
The London Organizing Committee for the Olympic Games had guaranteed a number of hotel rooms at a low price, but the committee recently allowed 8,000 of these rooms to be rented at market rates. This may dilute the rate somewhat, but it could also encourage more visitors who had balked at higher rates, Hubbard says.
The budget hotel segment is growing the most in the city, accounting for about 50% of the 2013 expected deliveries. Operators such as Premier Inn and Travelodge are adding about 2,000 rooms. However, more luxury hotels are also descending on London, including the multi-million refurbishment of the Savoy and Four Seasons Park Lane, and the new 173-room ME London at Aldwych, 245-room InterContinental London Westminster and 36-suite Wellesley in Knightsbridge.
Hubbard says this year will likely set a record for hoteliers, but next year may get challenging. He says London is on the right track, with an annual RevPAR growth of 5.8% during the past five years even in the face of the economic crisis.
“Our view is that despite the new stock coming into the market, London trading will remain robust and the new supply should be absorbed without a material negative impact,” he says. “There may be a slight softening of prices in some areas or a slowing of the ADR growth rate, but with improving product quality this should support rates going forward. Much of the new supply will be in the budget sector, so it should help attract additional visitors to London, thus helping maintain the historically strong occupancy rates. Also historically, London has perhaps under-supplied with hotels so this small spike in supply helps redress the balance.”
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