Olympic boost helps push London hotel profits up by 90% in August

According to the latest bulletin from international real estate advisor Savills and TRI Hospitality Consulting, the 2012 Olympic Games significantly helped boost performance in the London full-service hotel market as gross operating profit per available room (GOPPAR) increased by 90% in Aug 2012, compared to the same time in 2011. Revenue per available room (RevPAR) was also up 41% in the same period.

A more in-depth analysis of the research shows that the five-star luxury hotel market and West End hotels were the best performers with 171% increase in GOPPAR year on year. This was off the back of a RevPar and total revenue per available room (TRevPar) of 64% and 65% respectively.

Robert Seabrook, head of hotel transactions at Savills, comments: “The phenomenal performance in August was a timely boost for the London hotel market, which until then experienced relatively weak revenue growth and no gross operating profit growth over the seven month period to July. The market is now on track to register RevPar and GOPPAR growth for 2012.”

David Bailey, director at TRI Hospitality Consulting, adds: “The hosting of such a fantastic Olympic event can only enhance London’s reputation as a world class destination. However, looking to the immediate future, revenue and profit growth in the London full-service hotel market is slowing and, with the exception of the August Olympic period, is virtually flat.”

Savills also notes that the revenue growth was largely concentrated in central London and the five-star market, although outer London and the three star market category still achieved 30% GOPPAR growth in August.

The Savills and TRI research shows that the investment market has remained relatively resilient, with 2012 volumes to date totalling £1.25bn, which is only 5% down from 2011. Key transactions included the buy back by Principal Hayley of six hotels from AAIM for £189m and The Cavendish in St James which was sold to Singapore based Ascott Group for £159m. Most of this resilience came from London with volumes to date totalling £717m accounting for 57% of UK transactions, which is up 35% from the same period last year. Regional volumes remain subdued with a 14% decline in transactions in the last year.

The bulletin states that overseas investors are driving investment activity in London accounting for 62% of transactions this year. Asia Pacific investors were the most active accounting for 79% followed by those from North America with 16% of overseas investment.

Robert continues: “For the first time, more than half the London luxury hotel room stock is owned by foreign investors. UK owners still account for a 47% share, but investors from Asia Pacific, North America and the Middle East have capitalised on the favourable exchange rate and debt issues facing UK owners to enter the London market.”

The research predicts that investment volumes for the rest of the year will be in line with 2011. Going forward regional activity will remain subdued, but there are several high profile London hotels expected to come to the market next year which could push volumes in the capital up.

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