MARKET OVERVIEW
74
ANNUAL REPORT 2015
FRASERS HOSPITALITY TRUST
Hospitality Industry Performance
London is the best performing city
in Europe for hotel performance
indicators. According to STR data, 1H
2015 occupancy was 80.9%, a small
increase from 80.1% in 1H 2014. For
the whole year of 2014, occupancy
was 82.9%, the highest of the major
European cities. In 2005 occupancy
was 74%, since then occupancy
has risen in a fluctuating trend to
2010. For the past five years hotel
occupancy has remained consistent
at around 80%.
1H 2015, there was no significant
change in ADR which remained at
GBP137 (USD200.45). ADR is also
one of the highest in Europe. For
the full year of 2014, ADR finished
at GBP141 (USD221), a 3% increase
on 2013. From 2012 to 2015, ADR
growth has ranged from 1 to 3%.
There has been a RevPAR decrease
of 1% to GBP109 (USD171) in 1H
2015 compared to 1H 2014. 2014
was the fifth consecutive year of
RevPAR growth.
Strong hotel performance is
supported by a wide base of visitor
arrivals and varied motives for
visitation. London benefits from
multi-purpose tourism including
leisure, business, medical, visiting
friends and relatives (VFR) and
educational tourism. Other
factors giving London its tourism
competitiveness include historical
ties to commonwealth and other
countries, a variety of international
diasporas, a thriving education
system with a high number of
international students, as well as
strong events and MICE tourism.
Existing Supply
There are approximately 1,510
hotels in London with 138,000
rooms. Notable openings include
the Shangri-La at the Shard and the
Mondrian London at Sea Containers
both in 2014. 2015 openings
include the Hilton London Bankside,
InterContinental at the 02, and East
London’s second Citizen M at Tower
of London. By the end of 2015, 2,970
rooms will have entered the hotel
market.
Future Supply
58 hotels representing approximately
6,200 rooms will enter the market by
the beginning of 2016. Half of these
are in the budget sector. By 2018,
17,500 new rooms are expected to
enter the market.
Hospitality Market Outlook
Strong hotel performance and a
transparent property investment
environment will continue to attract
international investors, and London
will continue to be a favourite safe
haven for cross border capital. We
expect cash rich Asian buyers from
China, HK, Singapore, Thailand and
Malaysia to continue investment.
Paris and London are the top
European investment destinations in
Europe and are likely to retain that
title for the near future. Past years
saw many portfolio deals and we
expect more of the same in 2015,
especially amongst private equity
investors and to a lesser extent,
owner-operators.
London accounts for 12% of total
European transaction volumes; it
is the most liquid European hotel
market. 2014 saw a slow down in
investment due to a lack of available
stock, the market is extremely
compressed with high interest from
domestic and international buyers.
Many existing hotel owners are
seeking to enlarge existing portfolios
to gain economies of scale by
purchasing adjacent assets. Lack of
appropriate sites may push capital
flows outside of London and toward
fringe locations in the capital.
The headline demand generating
event is the Rugby World Cup in
September and October. The 2011
Rugby World Cup was attended by
nearly 1.5 million people over 48
matches. Attendees and extra visitors
to the UK are forecast to inject
GBP869 million (USD1.34 billion) into
the UK economy.
Major redevelopments such as
Battersea Power Station due in 2023
and One Nine Elms due in 2018 are
expected to revitalise and increase
footfall to lesser known areas.
Transport demand generators
include the Thameslink programme
due in 2018 and Cross Rail due
in 2018 which will link areas of
Berkshire and Buckinghamshire, via
central London, to Essex and South
East London by a high frequency
service. Travellers from Europe
will soon be able to access UK’s
secondary cities without changing
trains in London stations. Some
commentators say Cross Rail is the
largest engineering project ever
for Europe. The underground, ‘the
tube’, continues to face sporadic
strikes which is disruptive for travel
and tourism.
Although all four major London
airports reported record arrivals in
2014, air transport infrastructure
limitations and taxation are major
demand depressors. Since the
general elections of May 2015 have
now passed, we may see more
tourism friendly policy decisions.
The last six months have been
politically volatile in Europe.
Greece’s EU exit was seriously
considered, in May, the UK elected
a Conservative government with a
surprise majority. Several terrorist
attacks across Europe and North
Africa affected visitor arrivals and
visitor perception of safety. Despite
these potentially damaging events,
London hotels achieved impressive
hotel performance success.
Due to cultural and historical
reasons, London is and will continue
to be an aspirational, world famous
destination. The quality of its tourism
offerings is extremely high due to its
rich history and the government’s
strict regulation of cultural
heritage. It is a multi dimensional
tourism destination with innovative
entertainment, gastronomy and
attractions. As middle classes of
emerging economies increase
their propensity to travel, London
is a popular choice. The UK’s strict
planning regulations limit hotel
supply and slow the industry’s ability
to respond to changes in demand,
keeping performance indicators
high. Despite the aviation and
hotel taxes as well as the difficulty
of obtaining a visa for many
nationalities, London will remain
one of the most robust and resilient
hotel markets in the world.
