Transactions in the UK hotel market are likely to be subdued until the terms of Britain’s exit from Europe become clearer and business confidence returns.
The latest Hotel Bulletin, published this week by HVS, AlixPartners and AM:PM, outlines the fact that hotel transactions in Q3 totalled £522m in value, nearly half of that recorded in Q3 2015. Total transactions for the year-to-date were also significantly below that of last year.
“There is still no strong indication of what form Brexit will take and this uncertainty has led to indecision and delays in hotel property transactions,” said HVS London chairman Russell Kett.
“While the sterling depreciation recorded since June will have materially impacted overseas investors, many will be looking to take advantage of favourable exchange rates, making it a good time to buy in the UK. However, economic uncertainties in the UK such as a rise in inflation and the potential of rising costs means that decisions are instead being delayed.
“The other impact we have seen is that investors with existing portfolios in the UK will have recorded significant valuation declines when converted into their home currencies.”
The quarterly Hotel Bulletin notes, however, that Asian investors have maintained their interest in the UK market. This year has seen Hong Kong’s YT Realty Group acquire a partial interest in a London Travelodge from Goldman Sachs for £42m, while China’s Junson Capital acquired the DoubleTree by Hilton London Docklands Riverside for a reported £80m.
Q3 also saw the sale and leaseback of the hub by Premier Inn development at King’s Cross for an estimated £85m by Legal and General, along with the merger of Marriott International and Starwood Hotels & Resorts creating the world’s largest hotel company.
“Interest in UK hotels, particularly in London, is still relatively strong,” said Kett. “We expect transactions will rise in the latter part of 2017 as the terms of the UK’s exit from the European Union become clearer following the expected triggering of Article 50 in the spring. By this time much of the uncertainty should have dissipated and investors’ confidence in acquiring UK hotels should have improved.”
Hotel Bulletin Q3 2016 reports that the UK’s tourism and hospitality sectors have received a short-term boost from the depreciated pound and the rise in foreign exchange movements. Hotel bookings in popular tourist locations rose in Q3, with Bath, for example, seeing average room rates rise by 9% compared with Q3 2015. Conversely hotels relying on corporate business recorded weaker growth in Q3 as business trips and conferences may have been put on hold.
“When the economic outlook seems clearer and confidence rises, demand for the hotel sector is likely to rise once again, particularly in London and those markets dominated by leisure business. Next year should be a great one for staycations as UK holiday-makers realise their pound will buy fewer dollars or euros,” said Russell Kett.
Download the Hotel Bulletin: Q3 2016 by clicking here.
