The opening of the first W Hotel in Britain next year, on the site of the former Swiss Centre in Leicester Square, will mark the arrival of a brand that has helped to redefine the luxury boutique segment in the United States. Today, however, the global recession and weak travel demand means more empty rooms and downward pressure on room rates, both in London and New York. In such a period, the American market, with a mature, competitive, branded hotel landscape, with approximately 67 per cent of the rooms estimated to be affiliated to chains and with over seven times as many rooms as the UK, provides a useful reference point.

The recession on both sides of the Atlantic has sharpened the focus on value for money for business and leisure travellers. Corporate belt-tightening means that business travellers have had to trade down. For leisure travellers, there is a wait-and-see approach, to focus on maximising value. Short breaks are being jettisoned in favour of a main holiday. Younger travellers are shopping around more and older travellers are asking for discounts.

The metric to watch for hotels is “RevPAR”, revenue per available room. Typically it lags GDP changes (historically in the UK by six to twelve months) and the UK has, in turn, lagged the US by two to three quarters. However, this recession has proved different, with both US and UK RevPAR turning down in a similar timeframe, the US in the third quarter of 2008 and the UK in the fourth quarter. In America, leisure travel has held up better than commercial travel in many markets, with weekday occupancy rates falling further than weekend rates.

Hotel businesses have responded to these challenges and prudence is ruling on both sides of the Atlantic, with capital expenditure cuts and general expenses under the cosh. Operators are trying to differentiate their products with new brands, rebrands and value propositions.

Unfortunately, the good times encouraged developers to increase capacity markedly, with the US accounting for 40 per cent of all new global hotel openings in 2008 and a further 700,000 more rooms in the pipeline (equivalent to the total number of rooms in the UK hotel estate), many of which are now being cancelled.

All players are suffering in the US, but there are differences. Premium brands appear to be worst affected. Midscale, well-branded operators have been suffering less and, as in the UK, it will be interesting to see the impact that price discounting further up the food chain has on value players below.

However, while retail in the US appears to have suffered more than retail in the UK, the reverse appears to have been the case for hotels.

Forecasts by PricewaterhouseCoopers suggest more than 12 per cent decline in US RevPAR in 2009 compared with a 19 per cent reduction in the UK figure, with London particularly badly hit. Britain is enjoying the benefits of a currency depreciation, attracting value-conscious visitors from across the globe, which is likely to boost the recovery that many hope for late next year and in 2011.

Andrew Garbutt is retail and leisure director at PricewaterhouseCoopers

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