Hotels in London recorded a 2.6 % decline in profit per room in 2016 , which was in spite of a 0.5 % increase in RevPAR , according to the latest data from HotStats .
Pipeline divides between budget and 4 / 5 star
The hollowing-out of the middle 2-3 star hotel market ( once its mainstream ) is starkly shown in the hotels development pipeline : nearly half hotels in development are budget , and nearly 40 % are four or five star .
The budget sector makes up 47 % of the UK ’ s active pipeline as Premier Inn and Travelodge continue their aggressive expansion plans . The two brands account for nearly 70 % of budget bedrooms opened in 2016 . Around 30 % of the active pipeline are four star hotels , 9 % are five-star properties and 10 % are apartments .
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“ Budget brands now account for 25 % of all hotel bedrooms in the UK , while the main casualties have been the two- and three-star properties . It ’ s difficult to envisage this trend changing for the foreseeable future ,” added Kett .
Whilst the addition of more 4,500 bedrooms of new supply into the capital undoubtedly diluted room occupancy performance , leading to a 0.4 % decline to 80.8 %, a 1.1 % increase in achieved average room rate to £ 154.26 helped to recoup the occupancy losses and drive growth in RevPAR ( Revenue per Available Room ) to £ 124.60 for 2016 .
However , in a bid to achieve RevPAR growth for year-end 2016 , hotels in London failed to maintain growth in other departments , suffering declines in ancillary revenues , including Food and Beverage ( -0.9 %) and Conference and Banqueting ( -2.7 %). As a result of the decline in ancillary revenues , the growth in RevPAR was entirely cancelled out and London hotels recorded a 0.6 % drop in Total Revenue in 2016 .
OTAs take an increased share of hotel margin
Furthermore , a 36.8 % year-on-year increase in Rooms Costs of Sales for the month of December suggests that the proportion of demand booking via high-cost Online Travel Agents into London increased significantly as hoteliers fought to record an increase in RevPAR for year end 2016 .
As a result of the rising costs across the operation , hotels in London recorded a profit decline in both the Rooms ( -0.4 %) and Food and Beverage ( -3.8 %) departments in 2016 , further compounding the overall profit decline at hotels in the capital this year .