European hotels feel crisis pinch.
Sunday, 23rd November 2008
Source : Deloitte
Year-to-September hotel performance fell slightly across Europe with revenue per available room (revPAR) was down 1.5% to €76 driven by a 1.9% drop in occupancy while average room rates decreased marginally to €112.

However, when looking at September figures alone, revPAR across Europe dipped 6.7%.

Commenting, Alex Kyriakidis, Global Managing Partner of Tourism, Hospitality & Leisure at Deloitte, said: "The world is now dealing with one of the most significant economic slowdowns in modern times and some European countries are being affected more than others. It's clear that occupancy is dropping in most cities and from past experience, average room rates generally follow. There is no end in sight of this global recession. The hotel operators will be focusing on value for money more than ever before. There will be cannibalisation across the segments as consumers become much more budget conscious"

Cities across the Euro zone have seen variations in revPAR performance. On average, occupancy has dipped into negative territory, while average room rates have risen slightly.

Brussels bucked the trend. Occupancy increased 3.3% and average room rates 6.3%, resulting in a 9.8% jump in revPAR to €82. Hotels in Brussels are considered less expensive compared to other capital cities in Europe and with limited new supply combined with stable corporate demand from European Commission conferences, hotel performance was strong.

Cyprus was another star performer, with the best revPAR growth in the Euro zone - up 11.8% to €88 so far this year. Hoteliers here can also boast that, despite the tightening of belts elsewhere, they managed to push up average room rates quicker than any other place in the Euro zone – up 14.4% to €142.

On the flip side, hotel performance did not fare so well in Dublin. Occupancy fell 5.7% while average room rates decreased slightly resulting in a 6.2% revPAR decline. During the past ten years, a strong economy and lucrative tax breaks have encouraged hoteliers to double the number of hotel rooms in Ireland. The combination of so many extra rooms and economic decline in both Ireland and its major source markets – the UK and the US - means that domestic and international tourism is suffering.

Fluctuations in hotel businesses across cities in the non-Euro zone were more extreme.

Political stability in Israel and a growing interest in both religious travel and trips to the Dead Sea are boosting hotel business in this country. RevPAR in Tel Aviv increased 18.1% to €118 during the first nine months of 2008 and the upward trend should continue into 2009 when the city celebrates its centenary. Tel Aviv has also achieved the second highest occupancy in Europe; at 80.9% the city is only half a percentage point behind London. Jerusalem and Eilat also did well, with revPAR up 16.3% and 10.8% respectively.

Meanwhile in Bucharest, revPAR dropped 8.2% to €73. The Romanian capital experienced the second largest occupancy decline in Europe, down 14.2% to 61.2%. New room supply has flooded Bucharest this year with the opening of the Ramada Plaza and the Radisson SAS, while the RIN Grand completed its extension.

Alex Kyriakidis said: "Hotel investment activity is down to approximately €5 billion in Europe from around €21 billion last year. However, developers who can raise cash are moving quickly into emerging markets, such as Turkey, Russia and the Commonwealth of Independent States. Sovereign wealth funds and budget brands are also still making acquisitions. The current financial turmoil could present opportunities to cash-rich companies looking to invest in distressed hotels assets or companies."

Looking ahead, Marvin Rust, Hospitality Managing Partner at Deloitte, said: "So far this year, hotels are proving they can cope with the economic downturn but the most dramatic events in the current financial crisis did not develop until after August and hotel performance is now suffering to a greater degree as belts tighten. RevPAR in Europe has dropped for four consecutive months and will remain in negative territory through the last quarter of this year.

"The recent downward trend in Euro zone business sentiment shows no sign of easing and it is not surprising that city breaks once considered affordable treats are now seen as a luxury. Hoteliers now face a difficult combination of disappearing consumer confidence, a squeeze on credit and a tightening of business spending, which is going to impact hotel performance to a greater degree into 2009."

Hotel performance of selected markets in Europe year-to-September 2008

All analysis can be found in Deloitte's quarterly report, ‘Hospitality Vision'.. All figures quoted are in Euros.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see
www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its Member Firms.
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