A new report by PricewaterhouseCoopers (PWC) has predicted that 2012 will see record occupancy levels for hotels in both London and the regions.
PWC said it also expected the regions to enjoy a "brighter" time in 2013, although London could suffer a mild post-Olympic hangover, as trading drops and there is a spike in hotel room supply.
The analysis showed and expected 2.8% revpar growth for London in 2012, with a rise in occupancy levels of almost 1.2%, taking it to almost 84%.
Meanwhile the regions would see a more modest 0.9% rise in occupancy, taking levels to 72% outside the capital.
If achieved it would be the highest annual occupancy seen in London since the 1970s and the highest ever in the regions.
But average daily rate (ADR) levels are expected be challenged by cost-conscious consumers and travel buyers seeking value and deals and the effect of lower spending visitors to the games displacing the usual, higher spending summer tourists. In 2012 in London, PwC said it expected an ADR gain of 1.2%, taking rates to over £135. But it anticipated a further ADR decline in the regions of 2.1%, where there has been no annual rates growth since 2008, taking ADR down to just £57.
Robert Milburn, hospitality and leisure leader at PWC, said: "All eyes will be on London this summer as the Queen's Diamond Jubilee and the London 2012 Games attract the world's interest. And without the boost to Q3 from the Games, London hotels would have been looking at a poor year with the impact of the harder trading environment being felt more keenly."
Liz Hall, head of hospitality and leisure research at PWC, said: "For London in Q3 we expect occupancy to hit almost 92% and with rates at £156 pushing revpar to almost £144, a growth rate of over 21% over Q3 2011. Many operators expect trading to remain flat in London at best outside Q3 and we continue to forecast slight revpar declines in Q2 and Q4."
For the regions, PWC said it expected only a small boost in demand from the Games. Weymouth, the football cities and other centres holding events should see a small occupancy uplift and some areas will be hoping to benefit from the staycation trends as well as the Diamond Jubilee and Farnborough International Airshow. There could also be some overspill from London.
Unlike London though, the small occupancy boost is not likely to keep rates or revpar out of negative territory. ADR is expected to fall by 2.1% during 2012 as a whole and revpar to fall by 1.2%.
In 2013, post-Olympics, the lower demand and the east London supply spike look likely to depress trading in London.
PWC said it anticipated a 3% occupancy fall to an average 81% in 2013. ADR was also predicted to fall by 3.4% which would take rates down to £130.80 - £5 less than expected this year. And a revpar decrease of 6.7% would take it down to £106.16.
"Regional hotels could at last see some rates growth in 2013. Historically the impact of branded budget development has supported occupancy while weak economic growth, oversupply in some cities and the tide of branded budgets have depressed rates in the regions. In 2013 we think this may change with rates rising by 2.4% but occupancy falling marginally by 0.3%," Milburn said.
Liz Hall added: "We believe the large supply spike at a time of a more uncertain economic and travel environment is unlikely to mean a merrier competitive environment around the country and especially in London.
"What is surprising perhaps is the high proportion of budget hotels that are being developed in London. In the last three years London has seen a 13% increase in the number of budget rooms and will have approaching 24,000 budget rooms by the end of this year."
Budget rooms comprise almost half the total pipeline for even the central zone. In the East it's around 51% and in the West 41% of the 2012 pipeline. In the North and South budgets currently comprise 100% of all the [new] rooms.
Milburn concluded: "Many operators are positive about London's prospects after the games, encouraged by the global awareness of London as a destination and the ongoing improvements in infrastructure. Others, however, have voiced concerns about the supply spike and how it will be absorbed. If there is a post-Olympic travel dip, trading could get very difficult - especially in East London. At the end of the day, it all depends on whether the economy perks up."
By Neil Gerrard
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