Hotel Rate Growth Shifts from Europe to Asia

Hotels around the world have reported rate growth of 4% in the first half of 2011, according to the latest hotel survey from Hogg Robinson Group (HRG).

Of the 50 cities surveyed, 33 reported a year-on-year increase in hotel rates with strong growth in Asia and an unexpected boost from cities such as Istanbul.

 Key trends noted by HRG include:

- Singapore jumps seven places up the list of most expensive cities in the world, owing to a 10% increase in average year-on-year room rate due to high demand from business travellers.

- Hong Kong fell out of the top 10 most expensive cities in the world for travellers from the UK. This can be attributed to the GBP strengthening against the HK$ earlier this year.

- Over two-thirds of the cities surveyed reported hotel rate growth, compared with only one-quarter of cities last year, supporting signs of global recovery and pick up in business travel in recent months.

- The strongest performing region was Asia Pacific, where average room rates rose by 7% due to the concentration of hotel development and financial centres including Hong Kong and Singapore.

- Sydney joins the ranks of the top 10 most expensive cities worldwide due to a 16% increase in average room rate in the first half of 2011 which was sparked by a significant increase in the number of new business events.

- Moscow retained its top position with the most expensive hotel rates, despite a modest rate increase in local currency and GBP. It bounced back from last year's 12% decrease despite many new hotel openings, demonstrating the city's position as a strong business destination.

- Istanbul achieved the highest increase in hotel rate of 37% due to the growing interest surrounding the city as a business destination. Travellers to Istanbul are also conscious of its security issues and more inclined to stay in five-star accommodation.

HRG's full year survey is based on a combination of industry intelligence, actual room nights booked and rates paid by its UK clients during January to June 2011 compared to the same period in 2010.

The GBP exchange rate is based on the average for the period January to June 2011 versus the average during the same period in 2010.

Stewart Harvey, Group Commercial Director at HRG, said, "Yet again our survey indicates how important it is for clients to keep control of their hotel programmes and drive volumes to maximise returns. Despite the fact that many large companies have put in place travel restrictions and cost reductions, hotel rates in the majority of cities surveyed increased. Demand is driving the rate ... We can expect hotel rates to continue to rise as more economies grow and business demand picks up. During this time it is critical for clients looking to minimise travel spend to work with us to negotiate fair hotel rates."

Margaret Bowler, Director Global Hotel Relations at HRG, added, "The shift from Europe to Asia in hotel rate growth is significant in that it demonstrates changing business priorities. The rates demonstrate that demand has increased for travel to emerging regions as a result of the need to do business and that travellers are willing to pay higher hotel costs during their stay. Outside of Asia, Istanbul in particular has come out with strong rate growth."

Many of the cities with the top ten most expensive average room rates are the same as in 2010, with the exception of Hong Kong and Abu Dhabi, leaving room for new additions Sydney and Istanbul.

Moscow has retained its top spot despite a modest rate increase of 2% in local currency and 1% in GBP. It bounced back from last year's 12% decrease in the midst of many new hotel openings, reinforcing the city's position as a strong business destination.

Newcomer Istanbul reported the highest rate growth in both local currency and GBP. A large part of this growth can be attributed to growing interest in Istanbul as a business destination, combined with travellers' preference to stay in five-star properties over three and four-star. Margaret Bowler explained, "Many business travellers visiting Turkey choose top end hotels in Istanbul due to safety concerns. For example, they often request a hotel with a bar, so that they do not have to walk far to meet business partners."

Top 5 Highest / Lowest Rate Variance in GBP: 2011 vs. 2010

With the exception of Istanbul, the cities with the top five highest rate increases compared to last year showed modest growth in local currency. Both Madrid and Paris saw rate growth in GBP and local currency, resulting from a flat euro exchange rate and a strong six months of trading. Like these European cities, Singapore also experienced a 5% year-on-year increase in local currency due to high demand from business travellers.

Cape Town and Abu Dhabi experienced the largest rate decreases with 53% and 42% in local currency respectively. Cape Town rates have suffered since the 2010 FIFA World Cup, where many new hotels were constructed to meet the increased demand during the tournament. Although the demand has now decreased, the additional capacity is causing price competition. Abu Dhabi has encountered a similar situation with increased supply and decreased demand due to the rise of business in the city and the recent safety concerns around unrest in the Middle East.

Key Global Focus Cities ARR in Local Currency: 2011 vs. 2010

Rates in key global cities show a mixed picture of the health of business travel as hotels in some cities and regions are reporting rate growth in local currency and others are reporting rate decreases.

Frankfurt displayed growth in both quarters, as did Paris, potentially led by the pick up of the banking sector in the regions.

Although Johannesburg hosted the FIFA World Cup last year it reported flat figures in Q1 and a rate reduction of 6% in Q2, demonstrating that, as with Cape Town, there has been no lasting impact on hotel rates from the World Cup.

ARR by Region in GBP: 2011 vs. 2010

When measured in GBP, with the exception of Eastern Europe and Africa, all regions saw average room rates increase albeit by a small amount. The strongest performing region was Asia Pacific where average room rates rose by 7%, due to the concentration of hotel development and financial centres including Hong Kong (3% rate decrease) and Singapore (10% rate increase).

In Europe, a 1.6% rise was recorded. This was primarily aided by strong markets in France and Germany. The increase in Paris hotel rates was driven by the Paris Air Show in June which resulted in limited hotel availability and less competition. Propelled by the finance sector, Germany's hotel market has become stronger each year.

Conversely, Eastern Europe fared worst and had the highest regional rate decrease of 6.6%. Moscow has historically pushed up this regional rate, however the city only managed a 1% increase this year and was not able to pull up the overall regional average.

In Africa, the contrast between room rates in the first half of 2010 and the same period 2011 is marked, from a 16% increase January to June 2010 to a 5% drop in the same period this year. This demonstrates the effect hosting the FIFA World Cup had on the country last year, in terms of occupation volumes and opportunities to maximise overall rates.

Despite widespread political unrest, the Middle East & West Africa (MEWA) recorded a flat year-on-year although it is certain that occupancy was down.

Margaret Bowler of HRG said, "Slow and steady is the key theme here, with most regions recording small room rate increases – an indication that business travel is increasing too. The overall picture is one of stability, which should help to reinforce and renew business confidence."

Conclusions

"The hotel survey for January to July 2011 shows a mixed set of results. In Asia Pacific hotel rates soared as a result of the region's growing economic dominance and the proliferation of financial centres across the region including Hong Kong and Singapore. This contrasted strongly with the Middle East where hotel supply outstripped demand meaning rates fell sharply ... Key international cities like London, New York and Paris reported hotel rate increases, demonstrating buoyancy and resilience. London, in particular, is expected to flourish next year as it hosts the Olympics next summer. However, many UK provinces did not perform as well as expected.  Overall, our research shows that global hotel rates are increasing and have been exhibiting signs of growth. Looking ahead, we anticipate that hotel rates will continue to rise if the economy improves," said Ms. Bowler.

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