London’s hotel industry experienced a strong resurgence in July, with occupancy rates returning to the peak levels seen before the pandemic in 2019. According to the latest data, hotel occupancy in London reached an impressive 89.3% last month, up from 84.6% in July of the previous year. The global pandemic has significantly impacted the hospitality sector, but this rebound signals a robust recovery.
The rise in occupancy rates is a promising sign of increased consumer spending and a return to normalcy for the hotel industry. Thomas Pugh, an economist at RSM UK, highlighted that the surge in hotel demand could also have broader economic implications. “Another strong month from the hotel sector is an additional sign that consumer spending is starting to pick up,” Pugh noted.
However, this increase in demand could contribute to persistent service inflation, particularly in the hospitality sector. A drop in accommodation service inflation was a crucial factor in the recent slowdown of service inflation, but the sustained demand suggests that prices could rise again in August. Pugh warned that this uptick might influence the Bank of England’s decisions on interest rates, potentially delaying further rate cuts until later in the year.
While London’s hotel industry has bounced back to pre-pandemic levels, the UK has not yet fully recovered. Occupancy rates across the country stood at 82.1% in July, slightly below the pre-pandemic peak of 86.5%. Despite this, revenue per room has seen notable growth. In the UK, revenue per room increased from £138.61 to £146.60 year-on-year, with London experiencing an even greater rise from £221.51 to £232.20 during the same period.
Several factors, including high interest rates, wage increases, and rising supply chain costs, have driven the increase in room rates. Despite these challenges, the gross operating profits of UK hotels have shown resilience, growing from 42.2% to 43.3% in July compared to the previous year. London’s hotels performed even better, with profits rising from 47.7% to 49%, nearly matching pre-pandemic levels.
Chris Tate, Head of Hotels and Accommodation at RSM UK expressed optimism about the industry’s recovery, noting that the warmer weather and summer holidays have fuelled the strong performance of the hotel sector. “It’s encouraging to see occupancy and profits back to pre-pandemic levels,” Tate said.
Interestingly, this year, we did not see the usual seasonal increase in room rates in July. We attribute this anomaly to the unusually strong growth in June, likely sparked by high-profile events such as Taylor Swift’s concerts in London and Scotland. These events boosted hotel demand and provided a significant economic boost to the leisure and hospitality sectors.
Looking ahead, the hotel industry is expected to benefit from upcoming events, including the highly anticipated reunion of the band Oasis. Such events will likely sustain the positive momentum in recent months, ensuring hoteliers a strong summer finish.
London’s hotel industry has demonstrated remarkable resilience, with occupancy rates and profits rebounding to pre-pandemic levels. However, the sector remains cautious as it navigates the challenges posed by rising costs and the potential for renewed inflationary pressures. As the year progresses, the impact of high-profile events and consumer spending will continue to shape the industry’s trajectory, offering both opportunities and challenges for hoteliers across the UK.
