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London is a truly global city that pulls in more than £17 billion in tourism spending from over 30 million visitors each year but it’s also very big which means STR investment requires careful thought.
Right in the center of London is the City of London — also known as the Square Mile — but this is surrounded by 32 boroughs covering 1,572 square km, housing nearly 9 million people.
However, a substantial transport network of buses, trams, trains and Tubes, throws open a huge area for anyone searching for the best places to invest in an short term rental. While the tourists may be drawn to popular sights such as Buckingham Palace, the Natural History Museum and Hampton Court Palace, it’s not necessary to stay on their doorstep, and property prices do drop quickly as you leave central London.
As in any large city, this is one of the reasons why there’s such a wide variation in short term rental returns. We’ve dug up data on stays booked as of September 18 each year to show you the annual performance this tourist magnet has experienced in the past 12 months, alongside a few choice destinations within Greater London that remain popular with travelers to see how their relative performance stacks up.
London
Even though inflation remains high in the UK, nightly rates in London have still been growing in real terms, posting an 11% gain over the past year to reach £194. However, while Average Daily Rates (ADRs) have been healthy, occupancy has slipped 3%. This picture combines to deliver relatively flat revenue per available rental (RevPAR) growth of 8%, settling at £43. In short, revenues are just about growing in real terms. Booking windows are stable at 62 days.
Westminster
Westminster — home to the UK Parliament and Buckingham Palace — represents prime central London property and has had a similar experience in the past year. ADRs are up 11% (just like London as a whole) at £319 though occupancy has fallen behind, dipping 7% which has contributed to lower RevPAR growth of 3%. This now sits at £85 (a real-terms decline). Significantly, booking windows are down 6% at 63 days, mirroring the lower demand.
Tower Hamlets
Interestingly, booking windows have also fallen in another central London location — Tower Hamlets, home to the Tower of London. Here, they are down 5% to 59 days. ADRs are up 9% to £156 while occupancy is up 3%, pulling RevPAR up 12% to £32.
Tower Hamlets and Westminster are two central London locations but we’ve also focussed on two leafier areas further out — Richmond and Greenwich. In these areas, the booking windows have actually been growing, which can sometimes indicate destinations are coming into favor, witnessing higher demand and more interest from leisure travelers. However, it’s not always the case and it always needs to be placed in context.
Richmond
Richmond’s booking window may have increased 3% to 70 days but occupancy has fallen 4%. With an 8% rise in ADRs to £162, this means RevPAR has grown 4% to £37. While lengthening booking windows can be good news, property managers need to be careful when that occurs against a backdrop of falling real terms revenue and declines in occupancy. It can signal that a change of strategy is needed because fewer bookings will be responsible for the improvement in RevPAR you hope to see. Demand may be falling and you could be losing guests to competitors because there’s something wrong with your listings, or perhaps your rates are too high.
Greenwich
Greenwich is another borough offering green, wide-open spaces and an opportunity to retreat from the hustle and bustle of city life. Here, the sage warning we provided above is really coming into its own, with much greater movement in the RevPAR and booking window data. Don’t forget, average booking windows will also lengthen if fewer people are booking last-minute trips. It doesn’t necessarily mean more people are booking further ahead.
Booking windows in Greenwich have climbed 7% to 66 days. This is still lower than Richmond but what’s significant is that occupancy has simultaneously fallen 12%, dragging RevPAR down to end up flat on the year at £28. With inflation running at 6.7%, this is a real-terms fall of similar magnitude despite a 13% rise in ADRs to £135. It may still be worth investing in an Airbnb here — as it will depend on asset prices — but property managers with existing inventory will need to consider whether they’re being too ambitious with predictions of occupancy and their target nightly rates.
Need help identifying the best places for short term rental investment? Ask us for a demo of the Key Data Dashboard.
