LONDON—After months of wide-ranging speculation predicting everything from egregious price hikes to a market-wide slump, it appears London’s hoteliers will enjoy moderate price and performance gains during the Olympic period.
Room rate, availability and pricing structures for the Summer Games have been hot topics in the U.K. press in recent months. Fears have veered from overpricing and lack of availability to underpricing as a result of potential room surplus. Reuters recently reported hotel wholesaler JacTravel as forecasting London arrivals in July to be more than 35% down compared to 2011, with August almost 30% down.
But market forecast data from London-based STR Global, sister company of HotelNewsNow.com, along with a recent survey from the British Hospitality Association suggests a more modest outlook.
“We are forecasting for the whole of London to be up in average room rate between 3% and 5% in July and between 16% and 19% in August,” said Konstanze Auernheimer, director of marketing and analysis for STR Global.
There are more than 71,000 rooms in STR Global’s participating hotel sample in London.
Average daily rates in July and August (net of tax) for prior years were: top-tier (luxury/upper upscale) £241 ($376.42) and £164 ($256.15), middle-tier (upscale/upper midscale) £119 ($185.87) and £95 ($148.38) and lower-tier (midscale/economy) £79 ($123.39) and £64 ($100.02).
“One of the aims of the Olympics was always to be ‘the affordable games,’ so we really don’t expect to see huge increases from previous years,” Auernheimer said. “Even though some properties might try to hike prices because of the high demand, it remains to be seen whether there will be a high take up or not. Ultimately it is up to the consumer and how they react. If there really is nothing out there at a reasonable rate, the consumer may not book and the hotel might have to adjust prices.”
The 2012 Olympic Games run from 27 July through 12 August.
Seasonality and performance
The timing of the games coincides with London’s peak seasons, which helps mitigate the impact of price increases, sources said.
“July is London’s peak month anyway, and we’re looking at high occupancy rates in any year,” Auernheimer said. “Of course, the Olympics only cover the last few days of July and London in August is usually quieter, but I feel we are looking at good visitor levels for August too.”
A BHA survey of approximately 10,000 rooms taken in January and March “indicated hotels in central London were already pretty fully booked and all expected to be more or less completely full during the two-week period of the main games,” said Ufi Ibrahim, chief executive of the association.
A later survey at the end of May undertaken with London and Partners, however, revealed there was more availability than the earlier survey suggested.
“Some displacement of regular visitors was always expected, but most observers believe that this loss will be made up by visitors who are coming to London primarily for the games. Only time will tell whether this is correct,” Ibrahim said.
Ibrahim agrees with STR’s forecasts that prices have been raised “but not to unrealistic levels. Prices are demand-led, so if demand is strong, prices will rise. If demand slackens, so will prices. While there are examples of mainly independent hotels raising prices to unrealistic levels, it is unlikely that they will achieve those rates.
“There are rooms at all levels and all prices remaining, which are priced realistically. For a world event when demand is strong, you would expect prices to be high,” Ibrahim added.
As HotelNewsNow.com reported in February, London hoteliers maintained a positive outlook after the London Organising Committee of the Olympic Games and Paralympic Games returned approximately 20% of roomnights initially reserved.
“‘The release of the rooms was expected and is probably a factor in room rates not increasing to unrealistic levels,” Ibrahim said.
InterContinental Hotels Group, an official sponsor of the games, has just opened a new Holiday Inn and a Staybridge Suites next to the Olympic site in Stratford, bringing its U.K. room count to 40,000.
“We expect the occupancy rate in 2012 will be high across the full range of our hotels in and around London,” said Chris Hale, head of London 2012 for IHG.
“Thirty-five of our London hotels gave two-thirds of their roomnights to LOCOG as part of a deal in 2005 to help win the bid,” he said. “Now that we know what LOCOG will use during the games, we’re offering rooms to general retail and working with corporate clients to meet their needs. We have good occupancy already during the games, but we do still have rooms available at competitive rates.”
And ‘Olympic hangover’?
With the overall outlook for the games generally positive, the next set of concerns being voiced by the press is a potential ‘Olympic hangover’ that could see London low on tourists immediately afterward.
The BHA surveys, for example, suggested an increase in room availability between the main games and the Paralympics, which are held between 29 August and 9 September.
InterContinental Hotels Group
“But this was always expected,” Ibrahim said. “July is the peak month for London with 92% occupancy in both 2010 and 2011, and August is always less busy with 82% in 2010 and 2011, so having some availability in August is typical,” she said.
However, some travel agents already are predicting a stronger-than-normal August Bank Holiday.
Data compiled by TravelClick shows almost a third of London’s hotel rooms are already sold for the August Bank Holiday weekend, which takes place 24-27 August, an improvement of 24.2% in comparison to last year. Prices over the four days are up 25.2% at an ADR of £128.59 ($200.96) compared with the same period in 2011.
But so much talk in the press about inordinate price hikes might become a self-fulfilling prophesy and scare off guests, said STR Global’s Auernheimer.
“Potentially, customers might be put off and not even try to book a hotel for the period. However if you look around, consider the event and the timing, you should still find something reasonable,” she said.
Ibrahim said it is important to consider the big-picture impact.
“The industry has always taken the view that the value of the games to U.K. tourism is more long term than short term,” she said. “The worldwide television and media coverage will be hugely valuable to the U.K., and we believe it’s this that will be the best legacy of the games—encouraging people to visit the U.K. in the future.
“The U.K. is already one of the most successful tourism destinations in the world,” Ibrahim added. “Olympic coverage will help to keep it there in the future.”