Hotel Demand Study - June 2006
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Hotel Demand Study June 2006
Hotel Demand Study
Prepared by Grant Thornton and
The Leisure & Tourism Organisation
for the Greater London Authority
June 2006copyright Greater London Authority June 2006 Published by Greater London Authority City Hall The Queen’s Walk London SE1 2AA www.london.gov.uk enquiries: 020 7983 4100 minicom 020 7983 4458 ISBN 1 85261 872 8 This publication is printed on recycled paper Grant Thornton Grant Thornton House Melton Street Euston Square LONDON NW1 2EP T 020 7383 5100 F 020 7383 4715 The Leisure & Tourism Organisation The Leisure & Tourism Organisation 112 Manor Road North Esher Surrey KT10 OAG T 0208 339 2591 The views expressed in this report are those of the consultants and do not necessarily represent those of the Greater London Authority.
Greater London Authority
Hotel Demand Study
Contents
Page
1 Executive Summary 1
2 Introduction and background 8
3 The London tourism market 11
4 Trends in London hotel supply 23
5 Hotel market characteristics 36
6 Provision of accessible accommodation 43
7 Forecasting hotel demand 56
8 Conclusions on the supply benchmark 65
Appendix 1: Econometric analysis and scenarios 76
Appendix 2: Sub-regional analysis 83
Appendix 3: Future work on accessible accommodation 86
Appendix 4: National Accessible Scheme 89
Appendix 5: Sources 901 Executive Summary
1.1 Key points
The London Plan 2004 is currently being revised. It contains policies to secure and
enhance the economic benefits of London s visitor industry and provides guidance on the
nature and geographical distribution of new provision.
A key policy tool in the London Plan is the benchmark target for the provision of new
hotel bedroom supply. The current benchmark is for an extra 36,000 rooms over the
2001-2016 period, the equivalent of 2,400 new rooms per annum in total. This
benchmark was developed in a 2002 study by PricewaterhouseCoopers (PwC)1. This new
study undertaken by Grant Thornton and the Leisure and Tourism Organisation tests and
updates this benchmark to ensure that it is robust in meeting London's future needs to
2026.
This study concludes that 2,000 extra ("net") rooms will be required per annum over the
period to 2026. To meet this target, a total of around 2,500 new ("gross") hotel rooms will
be required each year, as we also expect a loss of 500 rooms each year.
Stronger growth is expected in the first decade. We estimate that around 2,800 gross new
rooms will be required each year over the 2007-2016 period. This is slightly higher than
the PwC annual benchmark of 2,400 over the 2001-2016 period. The key reason is that
our figures have an allowance for a loss of hotel stock, which appears not to have been
allowed for in previous studies.
Estimates of rooms "required"
Gross new Net extra rooms required
rooms required (Gross rooms minus loss)
2007-2016 2,800 2,300
2017-2026 2,200 1,700
2007-2026 2,500 2,000
Note: Includes all serviced accommodation, including hotels, bed and breakfast establishments (B&Bs) and
guesthouses.
To arrive at this benchmark, this study has:
reviewed long-term trends in the tourist market in London;
considered current trends in the provision of serviced accommodation and likely
trends for the future;
considered the impact of the London 2012 Olympic and Paralympic Games and
demand for Conference and Business travel;
reviewed the supply and demand of accessible accommodation; and
examined the pipeline of new hotel bedrooms and estimated the expected loss.
1
PricewaterhouseCoopers, Demand and Capacity for Hotels and Conference Centres in London: SDS Technical
Report Thirteen, August 2001Greater London Authority - Hotel Demand Study 2
Grant Thornton and The Leisure and Tourism Organisation
1.2 London's tourist market
London is the most visited city in the world by international tourists, with 1.75% of the
world's international arrivals visiting London.
International visitor numbers to London have been growing solidly over the past 20
years. Despite a slowing in growth in the early part of the 2000s, London's share of
international arrivals has increased again in the past three years. International
arrivals grew by over 14% in 2004, and a further strong increase of around 6% was
estimated in 2005.
Domestic visitor numbers to London have risen over the long term, but have declined
slightly in recent years. Low cost airlines flying from regional capitals have
increased competition with London.
London's profile has been developed and raised in recent years. The establishment of
Visit London has contributed greater marketing and promotion of London, while the LDA
has led tourism and product developments for the capital. The development of major
events in the city2, and the successful bid for the 2012 Games bodes well for London's
continued popularity amongst the world's travellers.
International visitor numbers to London are expected to continue to increase. As incomes
in developing nations rise, it is expected that travel demand will rise. Markets in China
and India offer huge potential to London as are growing incomes in other Commonwealth
countries.
Longer-term trends show that the overall number of nights spent in hotels is increasing
but at a slower rate than number of visitor nights spent in London. In 1995, international
visitors nights spent in hotels accounted for 39.8% of the total, but by 2004 this had
declined to 30.5%. This decline could be due to an increase in international tourists
visiting London to visit family and friends.
1.3 Characteristics of the London hotel market
On the basis of a comprehensive survey conducted by the London Tourist Board (now
Visit London), it is estimated that there were just over 93,000 serviced rooms in London
in 2002. Around 75% of these are hotel rooms, with bed and breakfast establishments
and other accommodation making up the remaining 25%. In addition, a further 29,000
non-serviced rooms (university/college rooms, serviced apartments etc) exist in London,
although these do not tend to be available for the whole year.
The London accommodation sector has proved resilient despite a number of setbacks in
the past five years. New stock has been developed despite some softening in room yields
and occupancy rates. Over the past five years (2000-2004) new room build has averaged
around 3,000 per annum (above the 2,400 rooms per annum benchmark).
But taking into account the 500 rooms lost each year in London, growth in hotel rooms
has been around 2,500 extra rooms per annum. Losses in hotel and B&B stock have been
mainly in the lower end of the market, which, along with new build and refurbishment of
existing stock, has had the effect of improving the overall quality of London's serviced
accommodation stock. The reduced use of B&Bs for accommodating the homeless has
partly contributed to a reduction in demand for low quality accommodation.
2
Including the development and implementation of the London Major Events Strategy.Greater London Authority - Hotel Demand Study 3
Grant Thornton and The Leisure and Tourism Organisation
Most hotels in London are concentrated in the central boroughs (with around 72% of the
total stock) but there has been considerable dispersal over the past 10 years, and further
dispersal is expected. Key areas of growth have been the east (Newham, Tower Hamlets)
and the west (Hounslow, Hillingdon).
A further aim of this study has been to consider the supply of accessible accommodation
in London. The known stock (ie. rooms that have been identified as accessible) is limited
- just 23 rooms have been verified as wheel-chair accessible rooms (only two with hoists),
and around 165 rooms verified as providing some improved level of accessibility.
Information on the rooms is also limited, with a potential role to be played by the public
sector in assisting information transfer. Information provided by hotels themselves has
also been found lacking in this study and is viewed as an area for further development.
There will also be a particular challenge around the provision of accessible rooms, and
information on accessible rooms, for the 2012 London Olympic and Paralympic Games.
A number of policy changes, including the Disability Discrimination Act 1995 and the
Building Act 2000 are likely to increase the supply of accessible rooms in London's
hotels. However, without information on these rooms and a coordinated offering to
disabled guests for the duration of their stay in London latent demand will remain unmet.
Future work is needed to ensure that hotels meet their duties under the Disability
Discrimination Act and, where they are not, the action required to ensure that they do
meet their obligations are clearly defined. The broad objectives of this more detailed
work are set out in Appendix 3.
1.4 Forward trends
In terms of key trends in the growth of hotel and B&B supply in London, our analysis
concludes:
The geographical spread of hotels is expected to increase, with a large number of
developments planned for the east and west of London. Regeneration initiatives
around transport hubs (in line with the development of sustainable communities) are
likely to also attract accommodation developments, and these initiatives are expected
over the longer term to also lead to an increase in hotel development in the north and
south.
Planning must facilitate the development of new serviced accommodation so that the
market can respond to increases in demand. There is some concern amongst
operators and industry experts that rigid planning policy is constraining supply,
especially in central London.
Further growth in the branded budget sector as well as innovative concepts such as
pod hotels, aparthotels and 'Yotels'.
Continued demand for accommodation around key transport hubs, and providing
adequate transport linkages will be one of the key issues for determining the location
of new hotel growth in the future. Transport connections are critical for business
travellers and there is strong demand for hotels near to travel connections (for
instance, Paddington and Victoria) and airports and train stations. The ability to
accommodate parking for disabled guests and coach parking will also be important.
The 2012 Games are likely to act as a fillip to supply, particularly in the east of
London and around key transport linkages. An important post Olympics legacy isGreater London Authority - Hotel Demand Study 4
Grant Thornton and The Leisure and Tourism Organisation
likely to be greater demand for accommodation to support the conference and
incentive travel industry.
Demand for accommodation from the conference and incentive travel industry is
also likely to influence the nature of future hotel supply. The present and future
demand for meeting facilities in London, and for business tourists generally, will lead
to hotels with a larger number of hotel bedrooms; greater and more flexible
conference and seminar rooms and apartments being provided within or as an adjunct
to new developments.
Demographic trends suggest an ageing of the population and a related increase in the
number of disabled people. Higher incomes and changing tastes towards travel are
likely to increase the number of disabled travellers in the future and this will be a
growing market need. London has a number of challenges to meet if it is to be a
destination of choice for disabled travellers.
1.5 Future hotel room requirements
In developing the hotel benchmark, we have taken into account the demand
characteristics identified above, and have considered the likely forward trends in visits by
both international and domestic visitors.
Econometric analysis of historical data undertaken by Grant Thornton suggests that the
number of nights spent in London by international visitors are likely to grow by 72% over
the next two decades, increasing from around 90 million in 2004 to 155 million by 2026.
This equates to growth of around 3.2% per annum over the 2007-2016 period, followed
by slower growth of 1.7% per annum over the decade after.
The number of domestic visitors is also expected to increase substantially, but to a lesser
extent, amounting to 63% growth in total from 30 million in 2004 to nearly 50 million by
2026. Again, growth is faster in the first decade at an average of 2.8% per annum over
the 2007-2016 period followed by slower growth of 1.7% in the decade after.
To meet this increased domestic and international tourist demand we estimate a further
40,000 extra (or net) hotel rooms might be required over the 2007-2026 period. On an
annual basis, under the central scenario this equates to 2,000 net extra hotel rooms each
year over the 2007-2026 period.
Given the likely uncertainties involved in such a long term forecast, we estimate the
number of hotel rooms required is likely to range from 20,000 net extra hotel rooms to
82,000 net extra hotel rooms, as shown below. In annual terms, a range from 1,000 to
4,100 net extra hotel rooms per annum. The kink in demand from 2012-2020 is due to
the legacy impact of the London 2012 Olympic and Paralympic Games.Greater London Authority - Hotel Demand Study 5
Grant Thornton and The Leisure and Tourism Organisation
Figure 1: Projections of total hotel rooms in London
190
82,000
Hotel rooms in London (000s) 180
'net' rooms
170
160
40,000
150 'net'
140 rooms
130 20,000
120 'net'
rooms
110
100
90
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
High scenario Low scenario Central scenario
Taking into account the assumed loss of hotel stock of around 500 per annum, a total of
50,000 gross new hotel rooms might be required over the 2007-2026 period under the
central scenario. In annual terms, this is 2,500 gross or new rooms built each year.
There is a great deal of uncertainty about the level of loss of hotels rooms. Different
sources contain different estimates and the level of loss fluctuates considerably from year
to year. The GLA might consider whether improvements can be made in collection and
publication of these loss statistics to ensure greater consistency and robustness in the
future.
Total over 20 year period (2007 - 2026)
Scenario Gross new Loss of Net extra
rooms required rooms rooms required
Central 50,000 10,000 40,000
High 92,000 10,000 82,000
Low 30,000 10,000 20,000
Our projections are based on average guests per room remaining constant and occupancy
levels increasing to their long term average over the forecast period. If the Mayor's policy
to accommodate new demand was changed into a policy where new hotel provision was
constrained, then the supply response in the industry is likely to be increased occupancy,
higher levels of guest rates per room and/or higher room rates.
For example, if we assume that more demand is absorbed by further increases in
occupancy rates - e.g. rising to an all-time high of 84% by 2012 - then the benchmark
figure in the central scenario reduces to 1,650 rooms. Similarly, if the numbers of guests
per room increases from 1.45 to 1.6 then this has an even greater reduction on the rooms
required benchmark to 1,350 rooms.Greater London Authority - Hotel Demand Study 6
Grant Thornton and The Leisure and Tourism Organisation
Extra rooms required
Sensitivity tests
(new rooms minus loss)
1 Base case 2,000
2 Occupancy levels return to high of (84%) by 2012 1,650
3 Average guest per room increases from 1.45 to 1.6 by 2012 1,350
Source: Grant Thornton
1.6 Future hotel room requirements by region
Forecasting trends into the future at sub-regional and borough level is difficult as hotel
development in each borough, particularly in outer London, fluctuates considerably from
year to year. Quantitative techniques based on past growth trends will also not be able to
pick up step changes in supply due to improved transport connections, new tourist
attractions or large scale regeneration.
The approach we use is therefore a mixture of quantitative and qualitative analysis. The
starting point is the London Hotel Development Monitor which reports future expected
future hotel developments by borough over the 2006-2010 period. Quantitative
techniques are then used to forecast the hotel room requirement over the 2011-2026
period, first at the sub-regional level and then secondly at the borough level. The borough
level forecasts take into account wider factors which could contribute to a future growth
of accommodation (eg regeneration, transport links and proximity to tourist attractions).
For example, improvements in infrastructure in the east of London relating to the 2012
Games may provide opportunities for the development of hotel stock in the area.
Our analysis suggests that the largest growth is expected to be in Central and West
London with net extra rooms required each year estimated to be 750 and 500 per annum.
Lower percentage growth of 1.0% per annum is forecast for the Central area, but as
growth is from a higher base, the number of extra rooms required is more significant.
The forecast is for dispersal to continue with total stock in central London falling to 60%
by 2026. The dispersal of accommodation from central London presents opportunities for
businesses and communities outside of central London, but also provides challenges for
coordinating visitor infrastructure, including transport.
Average annual growth in
Gross new Net extra
hotel room stock (2007-
rooms required rooms required
2026)
Central 1,030 750 1.0%
West 605 500 2.7%
North 85 75 3.0%
East 525 450 3.2%
South 255 225 3.8%
Total 2,500 2,000 1.7%Greater London Authority - Hotel Demand Study 7 Grant Thornton and The Leisure and Tourism Organisation 1.7 Summary The London Plan seeks to accommodate new demand where possible. Under this assumption, that new demand is not constrained, a total of 2,000 net extra hotel rooms would be required each year over the next two decades (or 2,500 gross new hotel rooms) in our central scenario. These new hotel rooms required take into account the growth in international and domestic tourism and visitors to the London 2012 Olympic and Paralympic Games.
Greater London Authority - Hotel Demand Study 8
Grant Thornton and The Leisure and Tourism Organisation
2 Introduction and background
2.1 Background
This report tests and updates the hotel supply benchmark figure for London to ensure that
it is robust in meeting London's future needs to 2026, taking into account recent trends in
the tourism market and the future demand associated with the Olympic and Paralympic
Games and concluding on whether the Games will in fact act as a stimulus to increase the
supply of hotels in London.
The report has been prepared by Grant Thornton and the Leisure and Tourism
Organisation and undertakes the following analysis:
Demand side analysis. Assessment of the hotel bedroom demand for London to
2026, taking into account strategic risks, structural changes in consumer
preferences and the impact of costs factors such as occupancy rates, exchange
rates and room rates.
Supply side analysis. Assessment of the current stock of hotels by type and
location, the development pipeline and the general market climate, including the
analysis of the demand and availability of facilities suitable for disabled people.
2.2 Previous studies
The report reviews a number of studies and builds on research previously carried out.
In 2002 PricewaterhouseCoopers (PwC) produced a report on the 'Demand and Capacity
for Hotels and Conference Centres in London' as commissioned by the Greater London
Authority3. The PwC report covered both historic trends and forecasts to 2016 and
therefore this report has been compiled in a manner consistent with the historic trends
reported by PwC and updated to reflect trends since 2002. In addition this report has
extended the forecast period covered to the year 2026.
PwC reported continued long-term growth in London's economy and overseas and
domestic tourism. A strong relationship between world GDP and the number of nights
generated by overseas visitors was used in their forecasts to predict hotel demand. The
potential difference between the hotel supply in 2002 and the forecast demand in 2016
was estimated as being between 15,000 and 58,000 rooms. This report considers and
revises these forecasts, extending the predicted demand to 2026.
This report looks at the impact of the 2012 Olympic and Paralympic Games on the
tourism market both for London and the UK as a whole and the impact this will have on
hotel demand.
PwC compiled a report in 2005 on the impact of the 2012 Games, which indicated
significant increases in gross value added (GVA) to London and the UK both during and
after the Games from increases in foreign visitors, thus impacting on the need for hotels.
In the longer term, the 2012 Games is likely to increase demand for Conference centres in
London, with an associated impact on hotel demand.
3
PwC, Op cit 1Greater London Authority - Hotel Demand Study 9
Grant Thornton and The Leisure and Tourism Organisation
2.3 Key issues for London
The past 20 years has seen an overall increase in the total number of visitors to London,
despite any temporary downfalls seen intermittently in the short-term. Overseas visitor
numbers have increased from 9.6m in 1990 to around 14.9m (estimated) in 2006.
Domestic visitor numbers to London have also grown over the long-term from 6.9m in
1990 to an estimated 11.8m in 2006.
Domestic numbers however have seen the largest fluctuations (compared to overseas
visitors) in the short-term, resulting in a slight downward trend in total visitors to London
since 2002. This has been influenced by the increasing popularity and accessibility of
many countries and growing competition from other major European cities (due in part to
the ascension of no-frills airlines).
The overall London market has been buffeted by a number of issues since 2001, including
terror events, SARS and the outbreak of Foot and Mouth. However, a recovery in
demand (particularly for international visitors) is evident and the London bombings in
July have proved only a temporary setback.
Improved room yields have supported investment in new hotel rooms in London,
increasingly away from central London to the western and eastern parts of the city. The
dispersal of accommodation represents opportunities for businesses outside of Central
London, but also provides challenges for coordinating visitor infrastructure including
transport and information services.
There has been strong growth in the Budget sector of the market and this has provided
visitors to London with a greater choice of accommodation. Moves to standardise the
quality ratings for hotels will hopefully also provide visitors with greater information and
certainty regarding their accommodation experience.
Looking forward, tourism is expected to continue to grow (as forecast to 2016 in the 2002
PwC report and extended in this report to 2026) and when considered in combination
with the additional impact of the 2012 Olympic and Paralympic Games (whose influence
was not included in the PwC report), and the planned development of major tourism
facilities, such as the International Convention Centre, it can be seen that substantial
additional demand for accommodation on an on-going basis could be generated. New
accommodation is planned to meet future demand, closing the gap between the current
room stock and the demand forecast in 2016 as reported by PwC, and the hotel market is
upbeat about London's prospects.
Demographic change is expected to provide a market opportunity for the provision of
accommodation to the accessible accommodation market, although evidence suggests that
London is not servicing this market as well as other destinations, which provides
challenges for the future.
2.4 Report structure
This report is structured as follows:
Chapter 3 - The London Tourism market: Provides an overview of trends in
international and domestic visitors to London and the use of hotels and other serviced
accommodation.Greater London Authority - Hotel Demand Study 10
Grant Thornton and The Leisure and Tourism Organisation
Chapter 4 - Trends in London hotel supply: Considers the supply baseline and
reviews recent completions, reductions in stock and expected future developments.
Chapter 5 - Hotel market characteristics: This chapter reviews recent trends in hotel
development by type, brand and location and looks at recent occupancy, room rates
and room yields.
Chapter 6 - Provision for the disabled: Chapter 6 outlines the current supply of
accessible accommodation, including for the Olympic and Paralympic Games and
looks at issues related to the current provision. The chapter reviews demographic
changes and considers the likely implications on demand for accessible
accommodation. Appendix 3 sets out the broad objectives of future work around
improving accessibility for disabled visitors.
Chapter 7 - Forecasting hotel demand: This chapter sets out our econometric
forecasting model and considers high, medium and low demand scenarios.
Chapter 8 - Conclusions on the future supply benchmark.
The Appendices provide a detailed description of the econometric methodology
(Appendix 1), hotel supply by borough under the new proposed sub-regional definition
(Appendix 2), the broad objectives of future work around improving accessibility for
disabled visitors (Appendix 3), the national accessible scheme (Appendix 4) and a
bibliography (Appendix 5).Greater London Authority - Hotel Demand Study 11
Grant Thornton and The Leisure and Tourism Organisation
3 The London tourism market
Key points
The growth in the number of international and domestic visitors to London has been
relatively modest since 2000, with the number of visits only now returning to the
high point reached at the Millennium.
However, over the long term there has been a steady increase in visitors to London.
Nights stayed in London by international visitors have risen on average by 3.1% each
year since 1993 (compared to 1.6% each year for the UK as a whole). Similarly
visitor nights spent by UK residents in London has increased from 19.1 million in
1990 to 29.7 million in 2004, an average increase of 3.2% per annum.
Although there has been an increase in the number of international arrivals in
London, the rate of growth is lagging behind other emerging cities (for instance,
Dublin, Berlin, Barcelona and Budapest). London's share of overseas arrivals dipped
from 2.3% in 1995 to 1.65% in 2002, but has since increased to 1.75% in 2004 with
recent growth ahead of other established tourist cities (such as Paris, Madrid,
Amsterdam and Rome).
In 2004, 33% of overseas tourist trips to London were for holiday, 27% were for
business and 28% were for the purpose of visiting family and friends4.
Trips to London by UK residents are thought to have declined significantly, with the
UKTS suggesting a fall of 41% evident since the peak in trips in 2000 (although it
should be noted that there are some concerns with the quality of the UKTS data).
However, UK residents are becoming increasingly likely to use a hotel in their visits
to the capital.
3.1 London Tourism Vision to 2016
The Mayor of London's London Tourism Vision for the period 2006 to 2016 is currently
out for public consultation. The Vision builds on the achievements of the Mayor's Plan
for Tourism and Tourism Action Plan 2003-06 which included the reorganisation and
repositioning of the key support agency (to create Visit London) and effective resourcing
for London's tourism industry.
The Vision sees the key challenges facing the tourism industry over the next 10 years to
be:
Use of the internet in booking and planning trips
Cash rich and time poor
New and emerging markets placing different demands
4
IPS, Travel Trends 2004, 2005Greater London Authority - Hotel Demand Study 12
Grant Thornton and The Leisure and Tourism Organisation
Global competition
Integration with inward investment
Emergence of new technology (e.g. mobile phones, ticket-less travel)
Ageing society
The ten-year Vision for London will evolve to incorporate the challenges faced above and
it is envisaged that by 2016, 'London will be recognised as the leading global city for
tourism and as a constantly evolving destination'.
3.2 International visitors market
The past 25 years has seen steady growth in the number of overseas visitors to the UK,
with visits by overseas residents increasing from 12.4m in 1980 to 30.0m in 20055.
Visitors to London have also increased, with international visitors to London increasing
from 9.6m in 1993 to an estimated 14.3m in 20056.
Growth has been particularly strong in 2004 and 2005, with growth of over 14% in 2004
and estimated growth of 6% in 2005. However, growth was relatively modest in the early
part of the 2000s with a number of circumstances (such as low cost airlines, exchange
rates, terror events) reducing overall tourist arrivals, impacting on both overseas and
domestic tourists. The events of September 11th had a similar effect on tourism, with the
number of visits only returning to their 2000 high point in 2004. The London bombings in
July 2005 had only a short term impact on overseas visitor numbers with visitor numbers
rebounding in the latter part of 2005.7 It should be noted that the PwC report produced in
2002 did not include the short-term downward trends noted above since these trends were
only just in the cycle at this point.
Despite the overall long-term growth of overseas visitor numbers to London, London's
market share in the number of worldwide International Arrivals has decreased marginally
from 2.3% in 1995 to 1.8% in 2004 (UNWTO). 2002 saw the market share dip to the
lowest level in the past decade of 1.65% and has since begun to rise again steadily.
Given that the number of International Arrivals worldwide has grown significantly in the
past decade (from 569m in 1995 to over 760m in 2004), it seems logical that there would
be a marginal decline in London's market share arising from increased competition from
new holiday destinations. In view of the increased competition, London's position as
shown in Table 3.1 is still relatively healthy compared to some of its rivals.
5
Office of National Statistics, IPS March 2006, Visit London, Visit London: Prospects for 2006, 2006
6
Office of National Statistics, IPS 2005
7
Visit London, Visit London: Prospects for 2006, 2006Greater London Authority - Hotel Demand Study 13
Grant Thornton and The Leisure and Tourism Organisation
Table 3.1: Major city destinations share of international arrivals 1990-2004
% share of international 1990 1995 2000 2001 2002 2003 2004
arrivals
Amsterdam - - 0.5 0.5 0.5 0.5 0.5
Dublin - 0.4 0.5 0.5 0.5 0.5 0.5
Hong Kong - - 1.3 1.35 1.3 1.0 1.25
New York - - 1.0 0.8 0.7 0.7 0.7
Madrid 0.2 0.3 0.4 0.4 0.35 0.4 -
Paris 1.8 1.3 1.3 1.3 1.3 1.2 1.1
Rome 0.6 0.6 0.6 0.6 0.5 0.5 -
London 2.2 2.3 1.9 1.7 1.65 1.7 1.75
Source: UNWTO, Tourist Offices, European Cities Tourism
The average number of nights stayed by international visitors to London has however
remained stable, generally averaging between 6 and 7 over the period from 1994 to
2005.8
Figure 3.1: Annual international visitors to London
International visitor nights (million) International visitor trips (million)
100 15
95
14
90
13
85
80 12
75
11
Intl Visitor Nights (LHS)
70 Intl Visitor Trips (RHS)
10
65
60 9
Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05
Source: IPS 2005
London has long been a 'Gateway' to the UK, with over 72% of overseas visitors arriving
via one of London's airports9. Visitors also spend time in the capital, with around 40% of
all nights spent in the UK by international visitors in 2004 spent in London. This is up
from 34% in 1993. It must be recognised that the success of London as a tourism
destination is linked to the success of the UK as a whole as a tourist destination, with
many tourists visiting London prior to travelling to other parts of the UK. As such,
London is a national asset, which must be invested in as a tourist destination, with
8
Office of National Statistics, International Passenger Survey, 2005
9
IPS, Travel Trends 2004, 2005 (arrivals through London City A irport and Luton are not included in the
breakdown contained in the report and hence international arrivals through London's network of airports is more than
72%).Greater London Authority - Hotel Demand Study 14
Grant Thornton and The Leisure and Tourism Organisation
investment flowing out to the regions as well as vice versa. This will help to secure
continued growth in the international visitors market.
Figure 3.2: Annual international visitors to the UK visiting London
London visitor nights as a proportion of UK nights
0.42
0.40
0.38
0.36
0.34
0.32
London visitor nights as % of UK nights
0.30
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: IPS 2005
Taking a longer-term view of visitor trends, there is a clear upward trend evident in
visitors to the UK over the past 20 years. Data for visitors to London has only been
available more recently, but as can be seen, the overall trend is likely to be similar. As
can be seen in Figure 3.3, international visitors to London follow a similar pattern as
visitors to the whole of the UK. Both have been rising gradually over time despite some
volatility in certain years.
Figure 3.3: Annual international visitors to the UK and London
UK nights (m) London nights (m)
300 100
90
250
80
70
200
60
150 50
40
100
30
20
50
10
0 0
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
UK nights London nights
Source: IPS
Within the inbound market, visitor numbers from the US (which continues to be the most
important source market) have remained below 2000 levels. However, strong increases in
the number of tourists arriving from other important source markets, such as Spain and
the Republic of Ireland, have helped to sustain the sector:Greater London Authority - Hotel Demand Study 15
Grant Thornton and The Leisure and Tourism Organisation
The leading overseas markets in 2004 were the USA (2.4m visits), France (1.3m
visits), Germany (1.2m visits);
International tourist arrivals worldwide grew by 11% in 2004 from 2003 with
particularly strong growth in Asia Pacific (+28%), Middle East (+18%) and the
Americas (+11%); 10
There has been a 65% increase in arrivals to the UK by Chinese residents
between 2000 and 200411, and despite the relatively small base, given the huge
Chinese population there is high growth potential for the future with any modest
percentage growth having a significant impact on the rest of the world. In
addition, the UK gained 'Approved Destination Status' from China in January
200512 and the Mayor of London and the Mayor of Beijing signed an agreement
to mutually promote their cities in April 200613. Both agreements are likely to
further encourage Chinese visitors to London.
Growing wealth in India and strong cultural links may also contribute to growth
in visits to London by Indian nationals over the next decade and longer.
Tourists are spending less and staying for shorter periods of time than previously. (Since
1979, the number of inbound tourists has grown 122% however spending has only risen
40%). This is largely due to a changing mix of purposes of visits, including increasing
numbers of visitors visiting friends or relatives14 as illustrated in Table 3.2.
Table 3.2: Purpose of international visit trips
1984 2004
Visiting Family or Relatives 19% 28%
Holiday 47% 33%
Business 21% 27%
Other 13% 12%
Total 100% 100%
Source: IPS Travel Trends 2004
Worldwide, the majority of international tourist trips in 2004 were for the purpose of
leisure and holidays (52%) with only16% being for business travel15.
3.3 Domestic visitors to London
Prior to 2000, the domestic visitor market in London had grown strongly (albeit with a
short term decrease in 1999). The millennium celebrations in London saw a "one-off"
level of visitors to London, with the number of visits peaking at 18.5m visits. Key
attractions opened in the City during this period, including the Millennium Dome and the
London Eye driving an increase in visits to the capital. The number of visits has returned
to just 12.3m over the year to March 200516. Total nights and spending have also
10
World Tourism Organisation, Tourism Market Trends, 2005 Edition - Annex, 2005
11
IPS, Travel Trends 2004, 2005
12
GLA Press Release, London and Beijing Mayors sign agreement to promote cities, 10-4-2006
13
China Briefing for Partners, Visit London 2005.
14
IPS Travel Trends 2004, 2005
15
WTO, World Tourism Highlights 2005, 2005.
16
UK Tourism Survey, time series data, 2000 to 2005Greater London Authority - Hotel Demand Study 16
Grant Thornton and The Leisure and Tourism Organisation
declined since their peaks in 2000 (nights are down by 35.4% and spending is down by
16.3%). However, Visit Britain and the DCMS have expressed concerns about the way in
which the survey was conducted, and therefore the robustness of the results. The UKTS
is currently reviewing the survey methodology as a result of these concerns.
It is worth noting that there have also been fewer UK resident visitors to England over the
period as well suggesting it is not just London that is out of favour with UK tourists17.
The increased availability of cheap flights to the continent from regional airports, rail
disruptions, higher petrol prices and Foot-and-Mouth disease, have been some factors
behind the decrease in the domestic market (in some cases even inhibiting visits to other
parts of the country), with specific events such as the London bombings having further
short term effects. Anecdotal evidence suggests that domestic visits to London declined
by as much as 30% in July and August 2005 as result of the London bombings18 although
activity has bounced back somewhat since then as evidenced by occupancy rates for
London hotels19.
Over the longer term, the total number of domestic visitor nights spent in London has
increased, 19m in 1990 to 31m in 200420. The average number of nights per visit has also
increased, rising from 0.8 nights in 1990 to 1.24 in 2004.21 Information on visitor
attractions visits paints a broadly positive picture for the past few years with the overall
trend being positive.
Figure 3.4: Annual UK resident visitors to London
London visits (m) London nights (m)
20 45
18 40
London visits London nights
16 35
14
30
12
25
10
20
8
15
6
4 10
2 5
0 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: UKTS
In terms of the key characteristics of domestic visitors to London:
17
UK Tourism Survey (UKTS), England 2003, 2004; UKTS, England 2004, 2005.
18
Visit London: Prospects for 2006
19
A ccordingto the UK occupancy survey for Serviced A ccommodation, London occupancy rates were 73% and 63% in
July and August 2005, but quickly recovered to 78% by September 2005.
20
UKTS, Time series data, 1990 to 2005
21
UKTS, Time series data, 1990 to 2005Greater London Authority - Hotel Demand Study 17
Grant Thornton and The Leisure and Tourism Organisation
The majority of domestic visits to during 2004 London were from the South East
(14%) followed by the South West (12%), North West and West Midlands (both
11%), East of England (10%) and East Midlands (8%). 22
In 2003, the purpose 38% of domestic visits to London was to visit family and
friends, 34% for holidays in 2003 and 25% for business. Key changes since 2001
have been an increase in holiday and business at the expense of trips to visit
family and friends.
The average number of nights stayed in London per visitor between 1994 and
2004 was 2.3 nights23.
3.4 Total visitors to London
Combining information on international and domestic visitors to London shows a
subdued performance for visitor nights and trips to London since 2000.
Annual trips to London by domestic and international visitors peaked at 31.6 million in
2000 (as mentioned above, trips were buoyed by the millennium celebrations in that
year). In 2004, trips fell to 26.1 million, representing a fall of around 20% on the 2000
peak. Similarly, total annual visitor nights have fallen over the period, albeit with a more
moderate decline of 4% recorded (due to an increase in the average length of trip). Over
the long-term there has been a steady rise in annual visitor nights, as illustrated in Figure
3.5.
Figure 3.5: Total Visitors to London
Million Nights
140
International Domestic
120
100
80
60
40
20
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: IPS, UKTS, Visit London, Visit London: Prospects for 2006
3.5 Business and conferences
Until recently there has not been a proper understanding within central or local
government of the importance of business tourism or its contribution to the local and
national economies. One business tourist is worth at least three times the amount of one
leisure tourist in employment and economic terms and business tourism is worth £3.2bn
to London, making the business tourism sector an important area for London to invest in.
This investment is particularly key given London (and the UK's) weakening share of
22
UKTS, London 2004, 2005
23
UKTS, time series dataGreater London Authority - Hotel Demand Study 18 Grant Thornton and The Leisure and Tourism Organisation international tourism arrivals and increasingly competitive conditions in the tourism market. The conference and incentive travel industry has evolved over the past few decades into a mature business sector. It is increasingly clear that businesses and associations cannot function effectively without face-to-face meetings. Over the ten years to 2004, there was a 50% increase in all business trips (with 27% of overseas visitors travelling on businesses to the UK in 2004) exceeding the overall tourism growth rate24. On a global scale, 16% of International tourist arrivals worldwide were for the purpose of business in 2004. A key part of the business tourist market is from conference/events attendance. London is already a strong convention destination, with 2004 statistics from the Meeting Industry Association (MIA) indicating it accounted for 60% of the UK corporate convention market. In 2003, 3% of domestic visits to the UK were for attending conferences and exhibitions (approximately 0.4m visits)25. In 2001, UK residents made 2.0m trips for conference and exhibitions comprising some 4.9m nights away from home and an associated spend of £420m. Conference and exhibition trips accounted for 10% of all business trips (including overseas visitors)26. 2005 saw optimism in UK conference venues with sales up and 65% expecting further growth ahead. A survey conducted across all conference desks and venues in the UK reported an average of 421 conferences per venue in 2004 (an increase of over 10% from the prior year)27, with venue income estimated to have grown 67% from 2003 to £12.9bn. London in particular saw a 21% growth in the corporate sector28. London leads the UK market with 60% of corporate organisers holding an event in the capital (30% Birmingham, 27% Manchester)29. However London is currently failing to attract its fair share of larger events with the business that London can handle being limited by the lack of purpose-built facilities. Investment in an International Conference Centre (ICC) in London would help meet this need and support London and the UK's position as a major visitor destination. Investment in business tourism can stimulate future inward investments where business people return to London on holiday or to visit family and friends or to establish business operations here. In addition, it is less subject to the fluctuations that can be caused by exchange rate changes and other factors that tend to affect leisure tourism to a greater degree. Business visitors also become ambassadors for the city by communicating to colleagues their experiences in the city. The ICC would also exploit London's role as a 'gateway' to the rest of the UK, with many business visitors to London extending their trips both in the capital and outside it. Quantifiable data in a report by Grant Thornton, showed that an ICC in London has the potential to contribute significantly to the Government's objective and DCMS target to 'maximise the economic contribution tourism can make to the UK economy'. The London ICC Commission has strongly supported this conclusion and stated in their final report: 'The ICC Commission is of the unanimous view that the business case for developing an ICC in London is clear and unambiguous'.30 24 International Passenger Survey 2001 25 Visit London, London Visitor Statistics, 2004/2005, 2005 26 TRI hospitality, ICC 27 British Association of Conference Destinations, British Conference Venues Survey 2004, 2004 28 British Association of Conference Destinations, British Conference Market Trends Survey, 2003 29 British Association of Conference Destinations, British Conference Market Trends Survey, 2003 30 ICC Commission, Final Report - October 2005, 2005
Greater London Authority - Hotel Demand Study 19
Grant Thornton and The Leisure and Tourism Organisation
In addition, the 2012 London Olympics will have a positive effect on London's position
in the international conference market, giving international meeting planners the
confidence that London can host large-scale events.
In 2002 and 2001, the percentage of total rooms that were sold to the
conference/incentive sector in London was 10.4% and 10.9% demonstrating the
importance to the hotel industry of business tourism. Comparatives for Birmingham
(highest ranking city in Europe) were 30.3% and 28.0%, though occupancy was slightly
higher for London at 72% on average versus 65% for Birmingham. Statistics gathered in
2003 showed that of 107 London hotels, conference/convention business accounted for
6.9% of rooms sold.31
In 2002, International Trade Forum magazine reported a growing number of business
travellers bringing their families on business trips creating opportunities for hotels and
conference centres to develop new offerings for children and spouses during business
meetings.
There have been recent trends towards meetings/conferences being held more frequently
with companies understanding that they must communicate more frequently with their
staff and other stakeholders.
The corporate segment commands higher rates than leisure/group segment, therefore most
large hotels are willing to allocate approximately one third of room stock to in-house
conference and banqueting events. However, when located in business destinations,
hotels are unlikely to allocate all their room stock to either in-house or City events
(conferences) if it means displacing regular corporate business.
While the overall corporate segment has grown, there are now fewer long-haul corporate
Conference and Incentive events due to32:
wish for better work-life balance
need for comfort i.e. avoiding 10 hour plus flights
increased perceived levels of insecurity, linked to air travel
expense
loss of productivity having staff away for longer.
Therefore, London's central position to Europe and America makes it well placed to
capture the event market.
A reasonable assumption seems that the conference/incentive sector will grow in line
with the business tourism sector as a whole. This is partly dependent on the extent to
which regions develop and maintain the necessary infrastructure. The recent report by
Grant Thornton on the proposed construction of an international convention centre in
31
TRI hospitality,
32
EIBTM, 2005 Industry Trends and Market Share, 2005Greater London Authority - Hotel Demand Study 20
Grant Thornton and The Leisure and Tourism Organisation
London33 estimated that some 170,000 delegate-days will be additional to the London
economy. These are largely big international association meetings, equating to an
additional 0.2% of visitor nights spent in London by overseas residents.
Forecasts carried out in 2001 projected a growth in all business tourism trips of 39%
between 2001 - 2011 with growth in real spend of 16%34, with further expansion likely
(as mentioned above), as a result of the Olympic Games.
On an international basis, leisure travel previously growing at a superior rate to that of
business is predicted to grow at 4.4% annually on average between 1998 and 2020
compared to 5.5% for business travel which is set be to more competitive, driving the
tourism market and reflecting the slower maturity in the business market35. The loss of
events to destinations outside the UK appears to have stemmed in 2005, with only 6.5%
of corporates holding events overseas (down from 8% in the prior year)36.
Barcelona reported a 64% increase in convention and incentive business annually from
1993 to 1996 after promoting the city as an excellent venue for international conferences
(after hosting the Olympic Games, a legacy effect that is hoped will follow the London
Games). The proposed London International Conference Centre may do well in this
capacity to keep hotel demand high.
There will be a number of implications for serviced accommodation from this growth in
business travel:
The present and future demand for meeting facilities in London will lead to: hotels
with a larger number of hotel bedrooms; greater and more flexible conference and
seminar rooms; and apartments being provided within or as an adjunct to new
developments.
Transport connections are critical for business travellers and there will be a tendency
to stay near to transport connections including rail links to airports (for instance near
to Victoria or Paddington) or near to international rail links (for instance St
Pancras/King s Cross). There has been a trend for the development of hotels near to
airports (for instance, a new 155 room Travelodge at London City Airport was
completed in 2005) which is likely to continue.37
3.6 Demand for serviced accommodation by visitors
Figure 3.6 below shows the proportion of international visitor nights in the UK spent in
serviced accommodation by type of international visitor. Business visitors to the UK are
most likely to use a hotel or other serviced accommodation38 (with over 50% of business
visitors staying in serviced accommodation). International visitors to the UK for the
purposes of studying or visiting family and friends are least likely to use a hotel for their
trip with less than 5% of all visitors for these purposes using hotels.
33
Grant Thornton, International Convention Centre Market and Funding Assessment, Final Report, April 2005
34
British Association of Conference Destinations, British Conference Market Trends Survey
35
The Department of the Environment, Transport and the Regions, A ir Traffic Forecasts for the United Kingdom
2000, June 2000
36
British Association of Conference Destinations, British Conference Market Trends Survey
37
Visit London, London Hotel Development Monitor December/ January 2006, 2006.
38
Serviced accommodation includes hotels, bed and breakfast establishments and guesthouses.Greater London Authority - Hotel Demand Study 21
Grant Thornton and The Leisure and Tourism Organisation
A similar breakdown is not available for visitors to London, although proportions are
likely to be higher with the total proportion of visitor nights in a hotel in London in 2004
(at 30.5%) greater than that for the UK as a whole (23.7%).39
Figure 3.6: International visitors to the UK staying in a hotel or B&B
Proportion visitor nights in hotel
60%
50%
2001 2004
40%
30%
20%
10%
0%
Holiday Business Visiting Relatives Study Other Total
or Friends
Source: International Passenger Survey
Longer-term trends for international visitors show a decline in the propensity to use a
hotel, which is linked to an increase in international tourists visiting London to visit
family and friends. Between 1995 and 2004 the proportion of international visitors
staying in a hotel declined from 39.8% in 1995 to 30.6% in 2004.
Conversely, UK domestic visitors to London are increasingly likely to stay in a hotel.
Over the period 2001 to 2004 the portion of trips spent in a hotel or B&B increased from
34% to 42%. This coincides with a reduction in trips to London to visit family and
friends and an increase in UK residents visiting London for a holiday.
39
IPS, Time series data, Various 1995 to 2004Greater London Authority - Hotel Demand Study 22
Grant Thornton and The Leisure and Tourism Organisation
Figure 3.7: UK visitor resident visitors to London
Proportion
60%
Holiday Business Relative/Friends Hotel/B&B
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004
Source: UKTS
Note: The categories of purposes of visit have changed between 2003 and 2004. The category "Visiting friends and
relatives" has been split to include an additional category " Visiting friends and relatives, mainly as a holiday". Therefore,
it is possible that there is some overlap between this new category and visitors on "Holiday" (ie. some visitors that
previously classified their trip as a "holiday" prior to 2004, would have used this new category (VFR, mainly as a Holiday)
if given this option). Therefore, direct comparisons between 2003 and 2004 may be misleading.
The overall trend has been a reduction in the propensity to stay in a hotel (with
international visitors far outnumbering domestic visitors).
3.7 Summary
The Mayor is committed to London s growth as a tourism destination, as a way to create
jobs and increase contribution to the capital s economy. However, London s visitor
economy is reliant on high-value overseas markets and on leisure tourism, although not to
the extent it was in previous decades. Visitors from overseas can be affected and for
longer periods than domestic tourists by global and domestic events and crises and
naturally by currency fluctuations. Greater concentration on growing business tourism,
broader overseas markets and the domestic market can help to alleviate such effects.
Visit London s increased marketing budgets should help to broaden its overseas markets.Greater London Authority - Hotel Demand Study 23
Grant Thornton and The Leisure and Tourism Organisation
4 Trends in London hotel supply
Key points
Visit London estimates that there were 93,248 serviced rooms in London in 2002.
Hotels rooms comprise around 75% of the total room stock, with bed and breakfast
establishments and other accommodation making up the remaining 25%.
Hotel completions have risen in recent years, with over 3,100 new rooms added per
annum in 2003 and 2004.
It is difficult to obtain robust estimates of reductions in hotel stock, although it
appears that there were around 440 hotel rooms lost each year over the past five
years. Around one-third of these are currently lost in the borough of Westminster.
In this section, we examine the existing data sources on the level of the hotel stock; the
type and location of accommodation; changes to the stock - additions and reductions; and
the development pipeline. We consider both the number of rooms and the type of rooms,
and analyse published historical data and use information available from Visit London
and other relevant sources.
4.1 The number of existing hotel rooms in London
While there is not one single database of serviced accommodation40 in London, there
have been two key stock estimates that have been undertaken.
Firstly, the 1991 Census estimated that there were 87,439 bedrooms in serviced
accommodation establishments in 1991. Unfortunately changes to the question asked
regarding accommodation in the 2001 Census has meant that this data does not provide
an updated estimate of the accommodation stock.
PricewaterhouseCoopers (PwC) in their August 2002 study on the stock of serviced
accommodation in London for the Greater London Authority 41, has escalated the 1991
stock using data from Visit London on hotel completions. Using this methodology, PwC
estimated that there were 107,428 hotel rooms in London in 2002. However, this method
has not captured reductions in the stock over time from change of use (often from small
hotels or bed and breakfast establishments to residential use) and may therefore over-
estimate the stock. The PwC report also estimated the stock of serviced accommodation
(and did not include non-serviced accommodation).
The second estimate of the serviced accommodation stock was undertaken by the London
Tourist Board (now Visit London). The Tourist Board conducted a comprehensive
40
Serviced accommodation includes hotels, B& B establishments and guesthouses. It does not include accommodation
housing refugees.
41
Greater London A uthority/ PwC, Demand and Capacity for Hotels and Conference Centres in London, A ugust
2002.Greater London Authority - Hotel Demand Study 24
Grant Thornton and The Leisure and Tourism Organisation
survey of serviced accommodation in London in 2002. This survey used the Visit
London database, information from Boroughs and information from other various
sources: (Yellow Pages, AA, RAC, Martin Information, PFK). This data was collated to
estimate the stock of serviced and non-serviced accommodation in London. The survey
suggested that in 2002 there were 93,248 bedrooms for serviced accommodation in
London and 28,745 bedrooms providing non-serviced accommodation.
Table 4.1: Estimates of serviced accommodation
Year Estimate Source
1981 88,100 1981 Census
1988 72,239 ETB/LTB Accommodation Services
1991 87,439 1991 Census
2002 93,248 London Tourist Board (now Visit London)
2002 107,428 PricewaterhouseCoopers estimate (2002 report)
Note: Census data between 1981 and 1991 cannot be compared directly as it is on an inconsistent basis.
For this report, we have based our estimates on the 2002 London Tourist Board study,
being the most up-to-date survey of the stock of serviced accommodation in London.
This estimate of hotel stock for 2002 can be extrapolated backwards to derive a time
series estimate of hotel stock (ie. serviced accommodation) by adjusting for new stock
and losses of hotel stock (Table 4.2). According to the estimates, serviced
accommodation has grown modestly over the period from 1991 to 2002, with annual
growth averaging just over 1% per annum.
The London Hotel Development Monitor produced by Visit London estimates all new
hotels opened in London with 20 bedrooms or more. The Monitor provides the basis for
the estimates of new stock below, and suggests that between 1991 and 2002 21,000 new
rooms (gross) were added to London's room stock (c1,750 bedrooms pa). The London-
New York Study (Corporation of London et al 2000) is broadly consistent with this
estimate, suggesting that between 1989 and 1998 approximately 16,040 new bedrooms
(gross) had been provided (1,800 pa).
Loss of stock estimates (ie. reductions in the number of hotel rooms due to demolition or
closure) are based on information received from Westminster City Council, and the basis
for the estimate is outlined in more detail below (cf. Stock Reductions). Stock losses
were not included in the 2002 PwC report.You can also read
