Challenging operational conditions but outlook improves
Operationally, 2016 has been challenging for the extended stay sector, albeit largely restricted to London. Year to date RevPAR (revenue per available room) for London as of October is down 1.7% on the same period in 2015. In contrast regional RevPAR is up 1.2%.
Demand in London, across both extended stay and the wider hotel market, softened over the early part of the year on the back of the Paris terror attacks. While demand recovered during Q2, with overseas business arrivals up 0.7% year-onyear, occupancy on the whole has remained relatively weak. Year to date occupancy, as of October, is down 4.0% on the same period in 2015. Despite the downward pressure on occupancy operators were able to push ADR (average daily rates), which increased 2.3% over the same period.
However, weaker performance in London is not simply a reflection of softening demand.
Stock absorption issues in London to subside
While weaker growth in overnight arrivals has played a part in dampening occupancy, it has been this, combined with stock expansion, that has been the real issue. Graph 1 details the net balance between supply expansion and overseas visitor arrivals staying more than four nights (used as a proxy of potential demand for extended stay accommodation) benchmarked against changes in occupancy. Periods where supply expansion has outpaced growth in demand correlates with weaker and/or declines in occupancy. 2016 is a prime example of this as London supply increased 4.6% (463 units) whereas demand softened.