The Strategist

Rumors are killing the luxury hotel business in London

04/28/2016 - 15:39

Rumors about everything - from the threat of terrorism to the UK's membership in the European Union – are undermining the luxury hotels business in London, as wealthy clients are stopping there increasingly less.

Durston Saylor
Durston Saylor
The city’s most expensive hotels were only 65% full in the first three months of the year, according to STR. This is the lowest rate in the I quarter since the beginning of the global recession, which broke out on the market in 2009. In addition, it is 70% lower than the same period last year.

Among the most exclusive hotels in London are Savoy and recently re-opened Lanesborough, where Royal Suite with additional services like a Rolls-Royce with a chauffeur is worth about 25 thousand pounds, or $ 36 thousand a night.

The demand for cheaper rooms is falling as well, but expensive hotels found themselves in the worst position. Rich clients and corporate customers are always more sensitive to the political unrest in the country.

The terrorist attacks in Paris and Brussels and the risk that the UK could leave the EU after the referendum - all these factors contributed to the deterioration of the market situation. 

"Many market sources are under pressure due to factors that London cannot control," - says Andreas Scriven, hotel business consultant at Christie & Co. In addition, wealthy Russians increasingly prefer to relax at home, and the Americans traditionally travel less in those years, when the country holds elections, he said.

Bob van den Oord, Managing Director of the Langham Hotel on Regent Street, believes that the deterioration in the industry occurred due to the security issues in Europe. "Everyone is concerned about terrorism," - he says. Rates at the hotel start at £ 300 per night.

There is an excess of proposals in the luxury segment, said Scriven. This is also obliged to opening of new InterContinental hotel near the O2 Arena and the renovation of Lanesborough hotel. As a result, offers of more than 540 rooms appeared on the market in the last year. 

The uncertainty associated with the referendum, to be held in the UK on June 23, is forcing businessmen to postpone business trips, says Russell Kett, head of the London office of hotel business consulting agency HVS.

The UK is now showing the worst results for transactions since 2010, according to Bloomberg.

The costs of companies in the country for M&A transactions were 39% lower than during the same period last year. The decrease is projected to last until June.

The reduced traffic has a negative impact on luxury hotels’ profit. As a result, revenue per available room decreased by 6.5% to its lowest level in the I quarter of the last three years, according to STR.

Nevertheless, the average daily rates of hotels rooms have increased as hoteliers would rather lose business than start to cut prices.