Savvy buyers see opportunity in hungover hotel industry

2012 was a great year for tourism in and around London thanks primarily to the Queen's Jubilee and the Summer Olympics. These big events kept the crowds coming and even the traditionally dismal British weather didn't dampen spirits or keep too many visitors away.

The rush of people brought with them an influx of business and new hotels opened up to take advantage of the situation, while existing hotels expanded where they could. Those that got in fast enough were rewarded for their efforts with high revenues, as reflected in the record high average daily rate (ADR) of £143.

But what of 2013? The rush is over and business has crashed back down to earth after the temporary boost over the festive season. Is there a chance that operators will find a way to keep up momentum? Liz Hall, head of hospitality and leisure research at PwC, doesn't hold out much hope. “The London hotel market has demonstrated remarkable resilience since the start of the recession,” she observed.

“This has been helped by one-off events such as the Jubilee and 2012 Games, which have driven some highs and lows (reduced business travel),” she added “It's hard to feel confident about 2013; there will be winners but a weak economic and travel environment, a fight for market share and more new rooms to fill mean many will feel the hit.”

Data from PwC data has predicted that hotel occupancy rates are likely to continue to decline, falling from 80 per cent at the end on 2012 down to 77 per cent in 2013. This would leave occupancy at its lowest point since 2005 – a clear sign of troubled times.

Such a change in fortunes is likely to hit newcomers hard and here's where the smart business buyers can step in. According to Ms Hall, a lot of the recent hotels that have opened and are due to open in London are high-end boutique-style offerings. These establishments often grab prime real estate positions and are often fitted-out with expensive furnishings. As the surplus of supply becomes clear, buyers that keep in continual contact with the market could find some unusual distressed hotel opportunities cropping up in the near future.

In addition to problems with an oversupply of rooms, 2013 is also likely to see hotel suppliers come under pressure, with many facing severe cash flow problems, not helped by the sluggish economy and tough borrowing conditions. The relative success of 2012 for the sector will no doubt invite comparisons with 2013 trading figures; we're betting this will be in negative territory and not help operators win investment or lending finance.

It is looking inevitable that the competitive market will leave some businesses struggling and may even push some hotel groups into administration.

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