Analysts at Deloitte, the business advisory firm, have observed a slow down in UK hotel performance in the first half of 2008. Since January, revenue per available room (revPAR) increased by 3.5%, over three percentage points lower than the 6.7% achieved in 2007, reflecting the economic downturn and a drop in consumer confidence.

However, while occupancy levels have seen marginal declines, growth in average room rates is pushing revPAR growth into positive territory. Regional UK results saw occupancy fall 1.4%, while average room rates increased 1.8% to £71 resulting in revPAR growth of 0.4%. Meanwhile, occupancy in London remained stable, at 80.8% while average room rates in the capital grew 7.0% to £133 resulting in revPAR growth of 7.0%.

Marvin Rust, Hospitality Managing Partner at Deloitte, commenting on the results said: “Although hotel performance growth is slowing, the industry has been able to increase nominal room rates despite marginal occupancy declines. The ONS International Passenger Survey showed no change in the number of visitor arrivals, and while visits from North America were down, this is being counteracted by an increase in arrivals from the Middle East and Asia. This presents hoteliers with opportunities for success over this economically challenging period.”

Across the UK, hotel performance has varied. Aberdeen, the star performer from previous years, also experienced a slow down in occupancy during the first six months of 2008, down 6.3%. Despite this, revPAR growth ended in positive territory at 4.6%, as average room rates witnessed a 11.6% increase to £84. The decrease in hotel demand coincides with the decline in North Sea oil production and current economic downturn. Oil companies are decreasing their travel spend and as a result corporate hotel demand is suffering.

Hull has experienced strong revPAR growth in the UK up 8.9% fuelled by a 5.6% increase in occupancy to 67.4%. Hotels have been busy putting a roof over displaced residents as a result of last summer’s severe flooding. One year on and the refurbishment works continue and out of town trades people continue to fill hotel rooms. After the lasting effects from the flooding, hotels should keep on performing well as the Tigers join the Premier Football League for the first time this coming season.

Liverpool is reaping the benefits of being the 2008 European Capital of Culture, as tourists flock to the city to experience the cultural events taking place. RevPAR in Liverpool grew 10.9% - the highest growth of any UK city, largely due to a 6.8% increase in occupancy.

Despite the positive news on revPAR, Deloitte is advising hoteliers to prepare for a downturn. Marvin Rust said: “The decline in consumer confidence is likely to have a knock-on affect for the hotel industry. The last recession was characterised by an initial decline in occupancy rates, followed by a fall in room rates.

“Hoteliers need to consider how they will respond if consumer spending tightens further. The inclination in tough times is to respond by cutting prices. However, once average room rates fall, it becomes difficult to move them back up. In the long term, incentives that will boost occupancy such as a minimum night stay over busy periods or a two for one offer may work out to be a better strategic option.”

UK city performance – year-to-June 2008*

Source: STR Global HotelBenchmark ™ Survey

* Preliminary year-to-June 2008 results

Note: All analysis in UK£

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its Member Firms.