Mind the (rate) gap: ADR differences in London and Amsterdam
By Kelsey Fenerty, STR
Amsterdam and London both boast spectacular hostel occupancy rates, with both cities averaging more than eight out of 10 beds sold, on average, in 2018. The metric dipped below 70% only three times in the past 24 months.
Seasonal patterns are similar between the two markets as well, with both cities enjoying peak occupancies in the summer months and fewer beds sold in winter months. London hostels experienced a small dip in occupancy in August for the past three years, potentially as a result of school holiday schedules.
Similar occupancies make the two cities excellent case studies for the effects of high occupancy on a hostel’s average daily rate. Bed ADR in Amsterdam hostels averaged €39.40 in 2018, a 3.3% improvement over 2017. Annual occupancy came in at 83%, a 0.5% increase from 2017.
London hostels experienced similar occupancy, increasing 1.5% from 2017 to reach 83.2% in 2018. However, the market’s ADR dropped -6.2% year-over-year to land at €22.07 for the year. London’s lagging performance – market ADR declined 11 of 12 months in 2018 – contributed to a growing rate premium between the two markets, a gap that has existed for more than three years.
London’s competitive hostel landscape
Amsterdam hostels enjoyed a 58.5% ADR premium over London hostels in December, the third smallest gap between the cities’ rates in 2018.
London hostels grew occupancy 10 of 12 months in 2018 and ADR only one month of the year, which suggests hosteliers are prioritizing occupancy growth over rate growth. A seasonal summer rate premium, wherein the rate gap between the cities grows in summer months and shrinks in winter months, supports this hypothesis.
Another factor contributing to this gap could be depreciation of the pound against the euro, which itself is fueled by increasing uncertainty in the UK capital regarding Brexit. Lack of progress on a deal in 2018 has taken its toll on consumer confidence, which likely has shaken operators’ pricing power in turn.
The biggest difference, however, may be market supply and supply growth between the two cities. In early 2017, Amsterdam banned new hostel and hotel development in the city center, essentially capping hostel supply at its current level and drastically increasing hosteliers’ pricing power. While the ADR gap between the two cities pre-dates Amsterdam’s development ban, Amsterdam maintained double-digit ADR growth in the second half of 2017. London has no such restrictions, and supply growth could be putting downward pressure on rate.
Even prior to the ban, supply varied widely between London and Amsterdam. STR’s hostel census counts 124 hostels in London, compared to only 55 in Amsterdam. With double the supply of the Dutch capital, London hostels operate in a much more competitive environment.
Market conditions emphasize rate premium
Amsterdam’s rate premium over London increased for each the past three years, from a 46.4% difference between cities in 2016 to 78.5% difference in 2018. Market conditions have exacerbated the growth: London ADR declined 16 of the previous 22 months, while Amsterdam ADR increased 17 of 22 months.
The rate gap between cities experiences seasonal trends similar to occupancy. The slower winter season from November through February generally experiences smaller rate gaps, while late summer sees the greatest gaps, suggesting that London hosteliers are leaving pricing power on the table during high-occupancy summer months.
Tourist powerhouse Amsterdam continues to adapt to its unprecedented flow of visitors while London seeks to maintain tourist interest in the face of political uncertainty, making the future of the rate gap unpredictable. Recent performance lends hope to London’s rate rebound, while rate growth in Amsterdam appears to be slowing. As occupancy in both cities remains high, these contrasting goals may lead to reduction in rate gap.
Interested in more?
STR reports on hostel performance in London and Amsterdam and is actively pursuing other markets. Reports are free to data providers. Interested in more information? Please contact Patrick Mayock at firstname.lastname@example.org.
STR provides clients from multiple market sectors with premium, global data benchmarking, analytics and marketplace insights. Founded in 1985, STR maintains a presence in 15 countries with a corporate North American headquarters in Hendersonville, Tennessee, and an international headquarters in London, England. For more information, please visit str.com.