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Hotel market

Recent trends in UK hotel investment point to a solid market

Author: Gemma





Investors looking at the UK hotel sector in 2019 will be interested to know how this space has performed in recent years, a period that presented a number of challenges to British industries and the economy as a whole.

A report from professional services firm PwC has highlighted some of the most significant past, current and prospective trends in UK hotel investment, which paint a picture of a market in good health.

Investors undeterred by Brexit

One of the key themes highlighted by PwC was that investors in 2018 were seemingly unfazed by Britain’s impending exit from the European Union, with hotel deal volumes increasing by a substantial margin last year.

During the first half of the year, transactions totalled approximately £3.8 billion, an increase of more than 80 per cent from the first six months of 2017.

Figures for the whole of 2018 are yet to be finalised, but the current forecast for total hotel deal volumes is around £6.8 billion, which would represent growth of almost 40 per cent from the previous year. This would also be the second highest level of investment in UK hotels since 2015, which witnessed a massive £9.3 billion in total transactions.

PwC noted that 2018 is set to buck the trend of deal volumes closely tracking growth in revenue per available room (RevPAR) over the past decade. This is because of the wave of major portfolio investments completed in the first half of the year, and the large portfolio and single-hotel deals that were still in progress towards the end of the year.

If this turns out to be the case, 2018 would be only the second year in which deal volumes exceeded RevPAR growth, along with 2015.

As well as noting that hotel investors are “not yet deterred by the UK’s impending Brexit”, scheduled for March 2019, the report pointed out that “large ticket transactions [are] becoming more commonplace as the competition for stable, high quality hotels [has] intensified”.

Sources of investment

Another key trend highlighted by PwC was a “considerable shift” in the sources of investment over the last four years.

In geographical terms, there has been a move away from the traditionally strong North American and UK investor bases, both of which shrunk substantially between 2014 and 2018.

European and Middle Eastern investors picked up the slack, accounting for much larger proportions of investment in UK hotels last year than they did in 2014. Asia has also become an increasingly important source of investment over recent years.

There have also been notable changes in the types of investors in the market, with property companies and real estate funds accounting for a larger share of transaction value, along with individuals and private wealth investors.

Prospects for 2019

As far as regional sources of investment are concerned, Europe and the Far East will remain highly important for the UK hotel market in 2019, PwC has predicted.

The firm highlighted a number of reasons for this, one of which is the relatively low value of the pound at the moment, which will interest global investors hoping to get good value for their money and make strong returns.

Furthermore, investment activity is being fuelled in part by the availability of cheaper finance, including ground leases, which are becoming more common in the hotel segment.

Another trend that could prove significant for the market in 2019 is the ongoing growth in investor appetite for alternative assets. PwC’s 2018 Emerging Trends in Real Estate Report for Europe ranked hotels second among the niche sectors being considered for investment, with 28 per cent of respondents indicating interest in this asset class.

Other forms of alternative accommodation, such as aparthotels, hostels and serviced apartments, are also attracting more demand.

Overall, UK hotel investment volumes are expected to be approximately £4.5 billion in 2019. While this would represent a decline from 2018 – which was a particularly strong year – the projected figure is largely consistent with 2017 and higher than the amounts recorded in 2016 and any year between 2008 and 2013.

What’s clear is that the UK will continue to offer many opportunities for potentially lucrative hotel investment in 2019.

Indeed, one of the main themes highlighted in the PwC report was a steady increase in the supply of new hotel rooms, with areas outside London witnessing strong development activity, reflecting positive trends in the regional hotel sector.

If you are considering entering the UK’s hotel investment market in 2019, follow the link for the latest Experience Invest reviews from clients who are receiving a passive income from a fully managed property.

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