• No UK meltdown

A slowdown and not a meltdown is forecast for UK hotels by PricewaterhouseCoopers.

But the consultancy was cautious enough to include a "downside scenario" alongside what it described as its "main scenario".

The PWC argument against a meltdown is that the industry is in good shape with hotels making the best of the business they have. Supply is described as coming on line slower than demand and the credit crunch seen as set to boost the hotel sector by preventing some projects going forward and thus avoiding a sharper fall in revpar.

Even the downside scenario does not see revpar going negative but rather 2.5% and 2.8% in London for 2008 and 2009 respectively and 3.0% in both years for the provinces.

The main scenario for PWC has revpar in the capital up 6.0% and then in 2009 4.4% while in the provinces the rise is 3.2% for both years.

These forecasts are broadly in line with those put out by TRI Hospitality Consulting which saw London growing revpar by 4.8% in 2008 and the provinces up 2.6%.

For the next couple of years, it seems conceivable that the hotel sector in the UK will maintain positive revpar but, as PWC show in a graph in its latest issue of the publication Hospitality Directions Europe, hotels are extremely cyclical.

The trend is broadly in line with real GDP and the past three economic downturns – 1981, 1991, and 2001 – saw negative revpar.

The UK avoided recession in the last of these three downturns – unlike most other countries – but the global economic climate and the exogenous shock of 9-11 meant revpar went negative (as it did in London briefly in the aftermath of the bombs in 2005).

There is no doubt that the UK hotel industry is better managed than it has ever been and that supply is mostly in check but it is hard to see a reason why if economic conditions deteriorate markedly then UK hotels will not similarly suffer in line with the overall economy. The good management and benign supply will merely make the hangover shorter and less pronounced.

PWC's forecasts are based on a macroeconomic background of 1.9% growth in real GDP in 2008 and 2.0% growth in 2009. This is pretty much in the area of most forecasters. But forecasters can be wrong and, assuming the error is over optimism, then the outlook for UK hotels would be far more gloomy.

When PWC asked hoteliers what they thought about the year ahead, most were concerned about the direction of room rates (the consensus on occupancy was flat). The outlook on rate ranged from growth of 5% to a drop of 4%. This huge spread accurately reflects the uncertainty out there.

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