London hotel market demonstrates resilience to terror
London hotel market demonstrates resilience to terror
03 JULY 2017 8:20 AM

Although terrorism affects all locations, some hotel markets, including London, can bounce back quicker as a result of demand drivers.

REPORT FROM EUROPE—The spate of terrorism incidents that have hit Europe over the last couple of years—notably in Nice and Paris, France; Manchester and London, England; as well as Brussels and Berlin—have all caused shock and outrage, but in terms of hotel performance have resulted in noticeably different outcomes.

While monthly data is not yet available in relation to the 22 May attack in Manchester and the 3 and 19 June attacks in London, sources said it’s very unlikely that there will be no impact, but the impact will be less substantial than that seen in other markets.

Adam Maclennan, director, head of U.K. and Ireland for PKF Hotelexperts, said terrorism always changes people’s booking decisions despite the sense of community that often develops after an attack.

“After Paris and Nice, there was a huge impact on the French hotel industry, so we should expect some effect in London and the U.K. It could put off a few tourists. I’d be surprised if there was not an impact at all,” he said.

London’s hotel industry is not expected to suffer as much as the Paris and Brussels markets because London has a healthier percentage of corporate guests than those markets do, said Asli Kutlucan, director of development and acquisition at Cycas Hospitality.

“Paris’ bread and butter is leisure, and leisure is the first to cancel,” Kutlucan added. “This affects cities in two ways, as corporate customers cancel less and they pay more. Paris declined 30% (following its attacks) in six months, and its dip in RevPAR was double-negative. In London, occupancy dips a little, but (average daily rate) still holds up.”

Kutlucan recently spoke at a hotel conference on the discrepancy between the hotel performances of these key European cities.

“After the 7/7 attacks, London (revenue per available room) recovered much faster than it did in Paris. Brussels was much worse because of its location and accessibility to other key cities. People had a choice to stay in another city and commute to Brussels. London does not have that. It is London or nothing,” she said.

Cycas’ portfolio includes full-service and extended-stay properties in London and a pipeline that includes two assets in Manchester and four in London, including one at London Bridge, where the second London attack took place.

The data seems to back up Kutlucan and Maclennan’s insights. Here are snapshots of what we know about performance in those markets (Percentages of growth and decline are all year over year):

London Bridge submarket
On the date of the attack—3 June 2017, a Saturday—occupancy in the London Bridge (Borough Market) submarket was 92.1%, a 8.3% increase year-over-year, with ADR of £193.02 ($250.79), a rise of 48.9%. On the day following the attack, occupancy was 73.1%, which was an increase of 17.4% year-over-year. ADR for that Sunday was £159.89 ($207.75), an increase of 26.3%.

Despite much of the area being closed to both traffic and pedestrians for the week after the attack, data for Wednesday, 7 June, shows occupancy of 91.7%, a decline of 6.1% year-over-year, and ADR of £238.27 ($309.58), a jump of 21.9%.

The next two Saturdays (10 June and 17 June) following the attack saw occupancies of 80.5% and 89.8%, respectively, and ADRs of £184.73 ($240.02) and £187.77 ($243.97), respectively.

ADR changes in the area are also affected by additional supply to an area that has developed dramatically in recent years, including the Four Seasons Hotel London at Ten Trinity Square, which opened officially on 7 June.

Overall London
Occupancy across all of London on 3 June was 87.2% (+6.9%), while ADR was £157.67 ($204.86), an increase of 14.9% year-over-year. The next day, occupancy was 68.5% (+9.6%), with ADR at £140.24 ($182.21), an increase of 5.6%.

The following Wednesday, 7 June, all of London saw occupancy of 90.1%, a decline of 5.1% year-over-year, and ADR of £170.77 ($221.88), a dip of 3.2%. On the two Saturdays following the attack, occupancy was 78.8% and 87%, respectively, and ADRs of £150.15 ($195.09) and £156.74 ($203.65), respectively.

The 22 May attack targeted a large concert at the Manchester Arena. For that day, occupancy in the city was 89.8% (+16% year-over-year), with ADR posting at £77.27 ($100.36), a rise of 10.4%.

The city showed resilience, and two notable concerts at major venues took place in the following weeks.

On 2 and 3 June, a Friday and Saturday, Robbie Williams played at the Etihad Stadium. Occupancy for 2 June was 90.4% (+18.9%), and ADR was £97.86 ($127.10), a rise of 38.2%, while for 3 June, occupancy was 94.3% (-1.7%), ADR £116.59 ($151.42), a drop of 3.3%.

On 4 June, during the One Love Manchester tribute concert to the victims of 22 May, occupancy in the city was 74.1% (-19.5%), and ADR was £73.37 ($95.29), a decline of 13.4%. On the day following, occupancy remained at 74.1%, representing a 3.2% decline year-over-year. The following Monday, 12 June, saw 83% occupancy (+5%), with ADR rising 6.1% to £75.92 ($98.60).

On 13 November 2015, occupancy in the French capital was 77.6% (+6.3%) and ADR was €337.12 ($384.69), a jump of +27.3%. A week later on 20 November, occupancy fell noticeably to 47% (a drop of 42.9%), with ADR more stable at, €297.94 ($339.98), a 3.3% increase. On Friday 27 November, occupancy was 58.5%, a 28.5% dip, although ADR jumped 30.4% to €377.45 ($430.71).

Wednesday 22 March, which marked the first anniversary of the attack in Brussels, saw occupancy still below 70% for the market, at 66.3%, an 8.4% increase compared with the date of the attack. ADR for that first anniversary date was €128.57 ($146.71), while on Wednesday, 29 March 2017, occupancy in the Belgian capital was only 25%, a decline of 52.7%, with ADR at €112.77 ($128.68).

New normal
Sources added attacks such as these might never go away, and travelers realize terrorism attacks might occur anywhere.

PKF’s Maclennan said many of those killed by the attacks were international visitors.

“Americans and potentially Asians might decide to stay away, at least temporarily. People still want to travel, and they will have to travel somewhere, and everywhere has had some type of impact recently, but still I think the impact will be less in London than it was for Paris,” Maclennan said.

He added other reasons the impact might not be so high is that recent pound sterling currency fluctuations have provided visitors with exchange advantages, and many people already had vacations booked.

“History says terrorism attacks do not help. People will be made nervous, and that does not help tourism,” Maclennan said.

Incidents will not scare off inbound capital either, sources added.

“Capital investment will continue in London. I do not have a crystal ball, but I believe that never will be an issue. No one is buying a million dollars a key and is not in this in the long term,” Kutlucan said.

“Investors want to get money out of their countries into safe destinations,” she added.

Kutlucan also believes that capital into London will not be affected by Brexit.

“In recent years, Europe has gone through terrorism, a crash, now Brexit, and we are all so much more resilient,” she said.

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