London room rates fall in 2016 ahead of a tricky 2017

Forecast predicts lower prices than expected in London

4 October 2016
Second to payroll, travel and expenses are a major cost of doing business. The exact breakdown will of course vary from business to business but generally speaking costs for accommodation, allowances and business travel tend to range from 50% to 70% of expense expenditure.
With travel, such as rail and flights, savings can be best achieved by encouraging forward planning, influencing travellers to lock down parts of their journeys, and by introducing policies that limit cost such as restricting first class rail. Changes in transportation costs are to some extent regulated for rail and subject to national and global competition in other categories. With accommodation, however, the hundreds of thousands of service providers in the UK alone represent a very broad range of businesses that ultimately all compete for traveller attention.
PwC has now released its latest UK hotel forecast for 2017, serving as a further update on expected cost changes last released back in March. PwC uses hotel data gathered by STR Global from major hotel groups and participating independent hotels, and includes all business a hotel might see to provide an overall expectation of supply and demand.
Forecasts generally look ahead to the following year, but also provide an opportunity to evaluate on how realistic previous forecasts have been. Looking back over PwC’s forecasts for 2016, expected rate and availability outside of London has remained broadly on track at around £68 ex VAT and 77% occupancy, however London has seen a steady drifted downwards from £155 ex VAT to £141 ex VAT, and occupancy from 85% to 81%.
The latest update predicts 2017 will see prices increase by just £1 across the UK. PwC suggests that this will be a year of uncertainty due to economic change ahead of Brexit, ongoing social and political concerns, and an increase in both new hotels and new availability through the likes of Airbnb. All this while the hotels see their operational costs rise due to the minimum wage and utility bills.
However, don’t bank a £1 increase in your daily rate just yet. Don’t forget that the data PwC uses includes many different categories of demand - not just business travel, and furthermore the major hotel brands will see this as an opportunity to re-enforce the strength of their brand, recommending hotel owners push for higher prices.
When we compare average rates PHR clients pay against PwC statistics, PHR clients pay on average 16% less. Yes, this is because we buy well on our clients’ behalf, but ultimately this is led by each client’s requirements. Your priorities are of course led by your own business, so while the PwC average rates are where they are, you shouldn’t assume that your rates being higher or lower necessarily means you are buying less well or better.
Due to the breadth and diversity of the lodging marketplace, forecasting your future accommodation costs are ultimately led by how much you can influence the prices and services you engage with to meet your demand. Should you be able to forecast your demand with a degree of reasonable accuracy and are able to drive business in your key locations, you will be able to command the most competitive prices. Full service hotels will see your business as more attractive if your travellers spend their allowances onsite, provide bookings on their quieter nights of the week, or book further in advance than other companies. Reducing costs by downgrading quality or service provision may see a short term saving but result in a disgruntled workforce.
At PHR we pride ourselves on delivering effective, managed hotel programmes that are tailored to your needs. We encourage clients to consolidate and optimise expenditure to their benefit. You can only do this by making confident decisions, communicated effectively to your colleagues, with the full support of your business travel partner - every step of the way.
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