When Lehman Brothers went to the wall in September 2008 the prognosis for the London hotel sector was dire. Budgets for even the most essential business travel were being slashed around the world, newly humbled companies were vowing to make extravagant shindigs a thing of the past, and above all the US financial sector – so central to the success of London’s higher-end properties – was clearly grounded for the foreseeable future.

Yet, much to the surprise of most analysts, the gloom barely lasted six months. US visitors and business travellers did indeed stay at home but the shortfall was more than made up for by a flood of continental holidaymakers taking advantage of the pound’s precipitous fall against the euro. Indeed, occupancy rates in the capital increased by more than a percentage point year-on-year in 2009, while revenue per available room (RevPar) fell a modest 4.7%.

It was in 2010, however, that the big bounceback really began. Newly favourable exchange rates attracted European shoppers to London and executives from the freshly buoyant BRIC nations replaced Americans in the city's fanciest hotel suites. Indeed RevPar growth reached double digits for the first time since 2006 and average annual occupancy rose to   82.1% – a trend that continued into the first half of this year.

The financial crisis also proved a boon for hotel groups looking to expand or get a toehold in London as tumbling office prices made properties more accessible, particularly for the newly invigorated budget sector. “Over the past 18 months, office rents have come to such a level that we can for the first time afford to compete for sites nearer to the centre of London,” says Patrick Dempsey, managing director of Whitbread Hotels and Resorts, the group behind the leading budget brand Premier Inn.

Budget groups have also benefited from the fact that their hotels are much more easily squeezed into moribund 1970s office blocks and that bankers are infinitely more comfortable with their funding model. As Chris Rouse, senior director EMEA at CBRE Hotels, puts it: “When the bank sees a lease, the financing becomes a no-brainer – if you’re a developer you can spend three or four years struggling to get a managed four-star hotel financed or you can do a budget one and knock it off in around six months.”

As a result, not only is the pipeline for higher-end properties bulging (see ‘London's brilliant parade’, p74), but budget hotels are springing up across central London. Homegrown operators Premier Inn and Travelodge have hundreds of rooms due to come onstream in the next two years, including a flagship Premier Inn property in Leicester Square. Eager foreign groups are also piling into the market.

Tune Hotels, the brainchild of Malaysian entrepreneur Tony Fernandes, made its debut in Westminster last year and has announced plans for a further 14 London properties, while next year, cool Dutch brand CitizenM is due to open properties at Tate Modern and Tower Hill in the second and fourth quarter respectively.

So full is the pipeline that some analysts suggest the market could become overcrowded towards the end of next year. But as Elizabeth Randall, managing director at hotel data provider STR Global, points out, 18 months of above-average supply has so far had little impact. “We’ve had the introduction of new rooms into the marketplace but occupancy has only decreased marginally, which indicates that the new supply is being very quickly absorbed by the growing demand,” she says. Jonathan Langston, managing director at TRI Hospitality Consulting, agrees: “London is full six nights out of seven so there’s going to have to be significant and greater supply increase than we’ve seen to make a dent in that sort of occupancy.”

And if anyone is going to be squeezed, most observers agree that it’s more likely to be the shabbier mid-tier operators than the new arrivals. “Brands that will struggle as new supply comes online will be those that can’t afford to invest,” says Greg Hegarty, general manager UK at Park Plaza. “Around 5,000 rooms are due to be added this year and next, and these are very sexy brands, so hotels will start losing market share very rapidly unless they reinvest.”

The most likely to lose out will be the disreputable independent hotels that still abound in areas such as Paddington, Bayswater, Earls Court and Bloomsbury, a trend that CBRE’s Rouse believes could be accelerated by the boom in residential property prices: “A number of tired old hotels in the mid-market would be better used for something else, ” he says.

Yet despite the strength of the market, some analysts are warning that hoteliers should keep an eye on the pound, particularly if the UK’s recovery starts to gather pace as the eurozone’s woes worsen. “The leisure market is vulnerable to the strength of sterling and with austerity plans being put in place by several European governments, that’s an area to watch,” says STR Global's Randall. “We need to be cautious about what our expectations are, even for the rest of the year.”

A return of strength to sterling could also impact on the development side of the market, warns Rouse. “If the euro collapsed it would probably have a pretty heavy impact on the profitability of London hotels and they’d suddenly be far less attractive for developers because we’ve undoubtedly benefited from the relative weakness of sterling compared to the euro,” he says. “If there were to be a major realignment of that, we’d have to think again.”

Langston at TRI Hospitality is more optimistic. “The appreciation of sterling could have an impact on demand but there are still significant taps you can turn on,” he says. “You have close to double-digit growth in economies like Russia, Premier Inn India and China and for the growing middle class that is emerging in those economies, London is likely to be at or near the top of their list of destinations to visit.”

Certainly, on past form, the chances are that London’s hotels will always find a ready stream of visitors from somewhere. As Liz Hall, head of research for hotels and leisure at PricewaterhouseCoopers, puts it: “London is a world city and it’s in a league of its own, because it’s got so many strands of demand.”

STAYING ON TRACK

With less than a year to go, the UK is succumbing to Olympics mania. The stadium in Stratford received its finishing touches in July, black cabs have been decorated Olympic pink, and more than 1.9 million subscribed for tickets in the first two allocations, of whom two-thirds – including London’s mayor, Boris Johnson – were unsuccessful.

Yet London’s hoteliers are surprisingly unmoved by the prospect of hordes of visitors. At the higher end of the market, many seem to regard the Olympics as little more than a handy way to fill rooms when the summer’s traditional Middle Eastern clientele goes home for the early Ramadan – and as a money-spinner the games are rated well behind the Farnborough International Airshow, a biennial event that reliably fills top-tier hotels with free- spending executives and deal-makers.

Partly, this is due to the London Organising Committee for the Olympic Games (LOCOG) already commandeering 65% of rooms for distribution to sponsors (at a fixed rate based on inflation plus a modest uplift), leaving hotels little stock to play with. But it is also down to the conviction that, for bigger operators at least, protecting their brand is infinitely more important than a couple of weeks’ worth of higher rates.

Greg Hegarty, general manager UK at Park Plaza Hotels and Resorts, says one of his priorities has been reassuring regular corporate customers that they will be able to access reasonably priced rooms throughout the games. “Hotels have to remember that the Olympics is only two weeks. If they’re making decisions based on two weeks that are going to aff ect their long-term relationships with customers, they’re short-sighted,” he adds.

Indeed, so anxious are brands not to be seen to be taking advantage of Olympic visitors that in May the British Hospitality Association demanded and received an apology from Johnson for accusing hoteliers of “profiteering” in connection with the games. Furthermore, several groups – including Starwood, Thistle and Whitbread, owners of budget brand Premier Inn – threatened to pull out when it emerged that some sponsor companies were selling on their LOCOG-allocated rooms at hugely inflated prices.

Patrick Dempsey, managing director of Whitbread Hotels and Resorts, says: “We have a brand that we want to build and grow in the long term, and the 17 days of the Olympics and the 11 days of the Paralympics are exactly that. They are a number of days in a full year, and we want to make sure that we protect the brand from a pricing perspective throughout that period.”

Analysts are also dismissive of media reports that the current spate of hotel openings is inspired by the Olympics. “I don’t think a sensible hotelier would build anything just for the Olympics,” says Liz Hall, head of research for hotels and leisure at PricewaterhouseCoopers. “You might try to open just before the Olympics if you were going to open that year, but most hoteliers know it’s a couple of weeks.”

Jonathan Langston, managing director at TRI Hospitality Consulting, agrees. “I don't believe any hotel has been developed with the Olympics as its single driving focus,” he says. “Even with those hotels that are being developed in Stratford, it’s because of the regeneration of Stratford – the Olympics are just the catalyst.”

LONDON'S BRILLIANT PARADE

You wait ages for a London bus, locals say, and then three arrive. The same could be said of luxury hotels – except that the number is already into double figures.

The rush of openings and reopenings was kicked off in high style last October with the long-awaited return of The Savoy, nearly three years after it closed for a £220m (€250m) revamp under the aegis of designer Pierre-Yves Rochon.

Rochon was also responsible for the refit of the Four Seasons Park Lane. Reopened in January, the flagship property now boasts 45 suites – more than twice as many as before its closure in 2009 – as well as extra meeting space and an extravagantly plush red-and-black setting for its Italian restaurant, Amaranto.

In the wow stakes, however, it paled beside the year's first big launch, the W Leicester Square. Starwood’s lifestyle brand always strives to makes headlines and – despite its unpromising location in one of the seedier parts of central London – the latest launch was no exception. Housed in a sleek, glass-sheeted, seven- storey new build, the 192-room property features a screening room, black-on-black décor and extensive use of glitterballs, and has been heaving with tabloid fodder since its opening on Valentine’s Day.

Glitz in an unusual setting is also the theme of the Waldorf Astoria Syon Park, a modernist addition to the Duke of Northumberland’s ancestral acres in west London. Reviewers were mostly unimpressed by the 167-room property’s “Dubai mall” aesthetic in March, but the lavish spa received more favourable write-ups – and the combination of an idyllic setting and easy access to Heathrow should ensure a steady stream of visitors.

Whether Corinthia’s London debut will be as lucky remains to be seen. The Malta- based group had to go cap-in-hand to the UK Treasury for reassurance that its 294- room property in the heart of Whitehall would not be subject to sanctions due to its backing by the Libyan state. Permission was granted for the opening in April but the Gaddaficonnection seems to have sharpened the pens of critics, who have queued up to denounce the extravagant tastelessness of décor and food alike.

By contrast, the May launch of Marriott’s 245-room St Pancras Renaissance Hotel was a hit with both the hospitality media and the paying public. The building – a red- brick Gothic monstrosity above St Pancras Station that achieved white-elephant status as early as the 1960s – holds a special place in the hearts of Londoners, and its revival was eagerly anticipated.

A few contrarians criticised the guestrooms as incongruously corporate, but most were in ecstasies over the restored Victoriana of the public areas and the unexpected romance of overlooking railway tracks. The addition of a brasserie by chef Marcus Wareing has only enhanced the hotel’s appeal, as has its location next to London’s Eurostar terminal.

The summer provided a brief respite for reviewers but the action is due to start again this month with the opening of 45 Park Lane, a 46-room boutique from the Dorchester Collection that will feature the first European venture from Austrian- American celebrity chef Wolfgang Puck. Also slated for this year are the launch of the revamped Café Royal on Piccadilly as a 160-room luxury hotel by Israeli group Alrov, and the Belgraves, an 85-room property by cool New York-based mini- chain Thompson Hotels.

Among the luxury properties due to open ahead of the Olympics are Bulgari in Knightsbridge, the third tie-up between the Italian luxury-goods house and Ritz- Carlton; the Intercontinental Westminster, a 254-room renovation of the Queen Anne’s Chambers building; The Wellesley at Hyde Park Corner, a 36-suite venture that its development company Arab Investments – perhaps inevitably– is calling London’s first six-star hotel; and The Great Northern Hotel, a 94-room boutique opposite the Saint Pancras Renaissance. Spanish group Melià was due to launch its luxury brand, ME by Melià, in Holborn next spring but the opening may be put back after a fire in June damaged the roof of the Foster + Partners new build.

Further ahead, the Shard of Glass development is rapidly rising on the South Bank, giving credence to Shangri-La’s claims that its London debut will open in early 2013; Four Seasons is due to open its third London hotel in the City’s Heron Plaza development; Firmdale, the group behind six wildly popular London boutiques, is working on a second project in Soho; the team behind The Wolseley, one of London's most fashionable restaurants, is renovating an old Avis car rental depot off Bond Street; and Singapore’s Kop Group has bought the old Port of London Authority building at 10 Trinity Place near Tower Hill for a boutique project due to open in 2014.