Hotels to be hit by fall in consumer spending

The UK hotel industry enjoyed strong growth in 2007, driven by the performance of London, but experts are warning that the boom is about to end as the leisure industry begins to feel the pinch from the slowdown in consumer spending.

The benchmark measure of the industry, revenue per available room (revpar), grew by 10.8 per cent in the capital, according to business advisory company Deloitte. This followed growth of 16.8 per cent in 2006. Although the regional UK market was more muted at 4.4 per cent, the increase marked the fourth year of consecutive growth across the country.

Average revpar in London increased from 99 to 110, the highest level since the technology boom days of 2000. Aberdeen has the fastest growing revpar of any UK market with growth of 17.2 per cent, mainly due to week day business demand from the North Sea oil industry. But this is unlikely to be sustained this year as major oil producers are likely to be reducing North Sea oil production, Deloitte said.

Marvin Rust, hospitality managing partner at Deloitte, said that although 2007 has been another good year for the market, "the question is how much longer double-digit growth can continue".

"So far, the UK hotel industry appears unscathed by troubles across the Atlantic and at home, but with an increasingly gloomy global outlook it would be a brave man to predict that 2008 will be as good as 2007," he said.

Roger Bootle, economic adviser to Deloitte, said: "Consumer spending growth is likely to slow from around 3 per cent last year to about 2 per cent and corporations will not escape unscathed either. This will have a direct knock-on effect on the businesses that rely on the City for their trade, including hotels, bars and restaurants." While hotels catering for the business community may suffer, budget hotels are expected to cash in.

Research from Mintel showed the UK budget hotel market increased by 38 per cent between 2002 and 2006 to reach 1bn. This growth was three times that of the overall UK hotel market at 12 per cent. The budget hotel market is set to hit 1.5bn by 2012, driven by the Olympic Games. Analysts predict the credit situation is unlikely to impact on new hotel developments.