London occupancy continues to decline amid terrorism fears

Hotel occupancy in London showed its sixth consecutive quarter of year-on-year decline, with Brexit poised to subdue the sector further. The latest Hotel Bulletin for the second quarter of 2016, published this week by HVS, AlixPartners and AM:PM, found hotel occupancy in the capital - in common with other major European cities - continues to be affected by increased global terrorist activity. It said London, which has also seen a decline in the number of US tourists travelling because of the US presidential election, has seen a 2% decline in revenue per available room (RevPAR) compared with the second quarter of 2015. Average room rates also failed to increase for the second consecutive quarter. Despite this, the report said the longer term future of the capital’s hotel sector is still positive as it will remain a “huge magnet” for inbound tourism, even when taking into account the new hotels in the pipeline and the potential impact of Brexit. Across the UK the picture was more varied, although the bulletin said overall demand was “sluggish” with average RevPAR growth only reaching 2%. It said this is seen as further evidence the UK hotel market may be approaching the top of the property cycle in some locations. Birmingham was top of the list with RevPAR growth of 16%, while hotels in Bath saw RevPAR up 11% year-on-year on the back of a boost in international tourists. In contrast Newcastle recorded another quarter of RevPAR decline - down 4% - due to the combined effects of a 10% increase in hotel supply over the past 12 months and strong comparators last year. Aberdeen saw RevPAR decline 24% year-on-year as hotel occupancy continues to suffer from the city’s struggling oil and gas industry. Apart from the £575m acquisition of Atlas Hotels by London & Regional, mergers and acquisitions in the sector have also been subdued throughout 2016 due to uncertainties surrounding Brexit, weaker economic growth in China, terrorism in France, Belgium and Turkey, and the US presidential elections. Russell Kett, HVS chairman, said: “The Brexit decision is having the double-impact of weaker sterling and a reduction in anticipated economic growth. “This is both good, and bad, news for the sector in that Britain becomes a cheaper destination for overseas visitors, dampening outgoing UK travel but potentially increasing the food and beverage costs as some suppliers pass on price rises. “Hotel transaction activity is also likely to slow down as investors assess the outlook of future trading but in the longer term we are optimistic the UK will remain an attractive source of investment for global investors.”