The UK hotel market has had a strong year thus far, transacting approximately £3.6 billion. Individual sales accounted for 65 per cent of transactions by value (£2.3 billion), where appetite for big-ticket lots has been particularly hot. Many of these transactions were by international buyers, accounting for 42 per cent of them by value (£1.5 billion).
This year has been shaped by the rise in staycations alongside steady overseas tourist numbers. The appeal of any hotel for investors is undeniably linked to its ability to attract guests and, at the moment, both corporate and leisure visitors numbers are strong, with nationwide occupancy rates at 77 per cent.
Outside London the hotel landscape is driven by domestic visitors. The value of the pound since the EU referendum has meant overseas travel has become more expensive and, according to Travelodge’s 2017 Holiday Index, 55 per cent of Britons had or are planning a staycation this year, contributing £17 billion to the UK economy.
Unsurprisingly, many Britons are planning to visit coastal destinations, with Devon, Blackpool and Norfolk all proving popular. This has been mirrored by a flurry of transactions by overseas purchasers on coastal hotels, such as the sale of Blackpool's Imperial Hotel (pictured above) to Singapore-based Fragrance Group and the Duchy Hotels portfolio to South African FairTree Capital.
In London, overseas tourism dominates the market with the city welcoming 19.06 million international visitors in 2016. Over the last decade, London hotels’ revenue per available room has been closely linked to overseas tourist arrivals. As projections for international visits are positive, London hotels are set to out-perform historic records and support a strong transactional market.
Demand for London assets remains at an all-time high with the scarcity of stock pushing up values as both established investors and new entrants look to take advantage of low exchange and interest rates. In the year to date, London hotels have accounted for 36 per cent of UK hotel transactions by volume (£1.3 billion). In the first half of the year this was higher at 55 per cent, but it has recently been skewed by regional portfolio transactions. Key London transactions this year include the sales of JW Marriott Grosvenor House Hotel, South Place Hotel, The Capital, The Levin and Hilton London Heathrow Airport to overseas investors.
Since the EU referendum, UK hotels have become approximately 24 per cent cheaper to foreign investors. This currency shift has allowed new international entrants to the market and boosted spending activity. The anticipation of a softer Brexit will provide further comfort, encouraging development and relieving pressure on staffing, all key factors when considering a purchase in the UK hotel market.
We forecast that UK hotel market transactions will reach approximately £5.1 billion by the end of the year, 28 per cent up on 2016’s total of £4 billion. While a sustained and balanced economy is not guaranteed, as overseas investors become more comfortable with the UK market we anticipate continual growth of new concepts, brands and operators looking to expand rapidly in the current favourable conditions.