London's Hotel Profits On Par With Inflation

Hotel profitability in London has been challenged in recent years due to the combination of new supply and the macroeconomic environment, according to a report from STR Global and Whitebridge Hospitality that analyzes the state of profitability in the hotel sector in London and the U.K. since 2000, with data based on two consistent samples of hotels (totalling more than 31,000 rooms).

During the 11-year period, the gap between the regions and London in terms of gross operating profit performance per available room increased. With the hotel Profit & Loss statements adjusted for inflation based on 2010 values, the report highlights the areas where inflation and changes in the costs structure impaired hotel performance.

"Looking at inflation-adjusted performance for London and the Regions, London's hotel profits have stayed on par with inflation with a negative 0.2% compound annual growth rate between real gross operating profit of 2000 and 2010," said Elizabeth Randall, managing director at STR Global. "London's profit margins returned in 2010, back to the same levels as in the year 2000. Regional U.K., on the other hand, reported less fortunate results. Profit margins declined by 11.6 percentage points to 31.3% during the same period. And real gross operating profit's compound annual growth rate declined 6.7%, highlighting the tougher market conditions for regional U.K. hotels".

"This analysis clearly shows that London is a destination apart," added Philip Camble, director of Whitebridge Hospitality Ltd. "Although performance levels are more volatile year-on-year due to the multiple domestic and international factors that affect demand to the capital, the overall trend has been very strongly upward. By contrast, regional U.K. largely has failed to keep up with inflation, even in the good times, and this is resulting in significant loss of performance."

The extended profitability report "Spotlight" is available for purchase from STR at US$100 and provides a more detailed analysis on inflation-adjusted revenue and cost drivers particularly in the current economic environment.

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