Colliers International head of UK hotels — agency Julian Troup talks to Boutique Hotelier and reveals 10 UK marketplace trends
Hello international buyers
We sold more than 100 UK hotels in 2013 and we looked at the buyers and where they came from. We found that 19% of buyers were international buyers. In previous years, the percentage of international buyers has been low; in 2012 they made up 6% of all buyers, so it is quite a significant increase and would suggest that the United Kingdom is a big attraction for overseas investors. The majority of these buyers are coming from the Far East — China, but also from continental Europe and there’s some money coming over from America.
Provincial piques interest
The international buyers are also looking outside of London, including provincial markets, which is encouraging.
The trend over the past few years has been London attracting a huge amount of international interest, which is understandable because it’s a safe haven and a good place to put money into. But now there are certainly some signs of international buyers looking further afield.
The market has been challenging since 2008, but there are signs now that quality stock [in good condition with a well-performing business] is increasing in value, but there aren’t signs that poorer-quality stock is increasing in value, therefore it’s quite a polarised market. I think one of the reasons prices have been kept so competitive for the poorer quality stock is because the bank debt is far more difficult to get hold of for these units. However, we are seeing a few examples now of parties being prepared to take the plunge and get in there on poorer-quality units because the price is right for them.
We’ve seen some examples of non-hotel interest being expressed for the hotel market. Not every hotel has an alternative-use opportunity, but people will buy a hotel and say ‘I only paid x for it and if it was a house it would be worth more than that’. So the comfort for buyers is the property value.
Something that frustrates us is that the valuation process in the UK relies very heavily on the rules and regulations of the Royal Institution of Chartered Surveyors (RICS) and it needs to be valued as a hotel, but if it was valued as a property it would underpin the value.
Back in the good old days, some valuers were criticised for overvaluing, I think there are valuers out there undervaluing at the moment. We have completed sales at significantly higher than the valuation figure. It’s important for the seller and their agent to consider what someone who can see potential might be prepared to pay for it. [If a hotel is trading poorly] it doesn’t help in the valuation process because there are some less experienced valuers out there who, if they don’t see that profit level, take quite a cautious approach.
Some people see buying poorer-performing stock at the right price as an opportunity to get into the hotel business and even if it goes wrong, the property has got to be worth what they paid for it or more.
People paying above asking price
There are certainly signs of a more positive sentiment. We’re now seeing some examples of buyers missing out because they lose a hotel to someone else. This is particularly the case for quality stock, we sold The Oakley Court, Windsor last year and we were absolutely inundated. The competitive environment drove the price to a very favourable level and there were some disappointed people.
Banks looking at buyers
While it’s still difficult to get bank funding, particularly on poorer-performing assets, banks aren’t necessarily only looking blindly at the value of the asset anymore. They are looking at the quality of the proposed customer too.
So if the customer has a good track record and has turned something around before, there are certainly signs of banks funding. The banks are slowly but surely — even in the provinces now — looking more favourably on these customers than three or four years ago.
Reasons for selling
Reasons for selling hotels [the smaller, privately-run hotels] tend to be due to personal circumstances: retirement, ill health, relationships and so on. A lot of people will go into the hotel business at a certain age. Say they’re in their 50s, they’ll do it for six or seven years and then start thinking do we want to continue, or do we want to enjoy our retirement? So quite a bit is related to what stage in their life they’re at.
Hoteliers hanging on
Quite a few of these hoteliers will have been sitting on their hands since 2008, they want to sell but they’re thinking they have to stick with it, but they don’t necessarily have to. There are still some examples of good prices being paid for these kinds of lifestyle businesses.
Areas in demand
There’s always demand for hotels in cities like Edinburgh, Oxford, Cambridge, Cheshire — they will be next in line behind London. However, the leisure-based businesses are generally the most attractive — those in national parks that attract people to go and stay and make a viable business. The Cotswolds and the Lake District have always been very important areas for us and continue to be great areas of attraction. In terms of the coast, Llandudno is somewhere people are going back to. Statistics show people are still wanting to holiday in the UK, they’re not all tootling off to Spain.