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UK hotel investment activity rises by 44% on previous year

The Old Ship Hotel, Brighton

A strong level of investment activity in the UK hotel market during the second half of 2017 has resulted in total investment volumes of £5.5bn recorded for the year.

According to Knight Frank’s Capital Markets Investment Review 2018, this equated to a 44% rise on 2016.

The total investment volumes rose from 29% to 33% last year which highlights the attractiveness of the UK specialist property sector as a means of providing longer term income in the alternative property sector.

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Investment from overseas investors was particularly active with total overseas investment accounting for 42% of the total UK transaction volume.

Discussing the forecast for the rest of this year, Henry Jackson, head of regional UK agency, said: “The appetite for quality regional UK hotels will remain buoyant in 2018, with strong demand from institutional, private equity and overseas investors. Investment decisions will be determined by income security, strong covenants, potential upside and competent management.”

Although private equity investors ranked as the top investor type into UK hotel property during 2017 overall, investment totalled £1.48bn, with private equity investors ranked 3rd in London and 2nd regionally.

The top three players, Aprirose Real Estate Investment, Henderson Park and Westmont were responsible for 90% of the total Private Equity investment, adding approximately 6,700 rooms in total to their portfolios.

Brexit however, did have an impact on investment activity.

London hotels benefitted from the weakened pound, resulting in a record number of inbound visitors and which provided the impetus for a solid year of RevPAR and GOPPAR growth, only limited hotel stock was brought to market as hotel owners chose instead to reap the rewards of a strong trading environment.

However, uncertainty of Brexit negotiations, the full price of London’s hotel assets, and continued yield compression, all contributed to investors seeking opportunities outside of London.

Despite the capital witnessing over a 70% increase in investment volume, totalling approximately £2.1 billion, excluding developments, and a 45% increase in the value of the average room transacted, the number of hotel deals that transacted in London during 2017 were fewer than the total number of deals in 2016.

Whilst investment deals increasing extensively by over 200%, London witnessed a 40% decline in the volume of single asset deals to approximately £600 million, with only 14 hotels changing ownership compared to 22 in the previous year.

This decline in activity resulted in London’s share of the UK’s total single asset transactions falling year-on-year, from 62% in 2015 to 40% in 2017.

Tags : investmentKnight Frank
Zoe Monk

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