Total transaction volumes in the UK hotels market could reach £8.5 billion by year-end, according to a report by global real estate services provider Savills. This is an increase of 39 percent increase over 2014’s post-recession peak of £6.1 billion, and marginally exceeds the record total of £8.3 billion in 2006.
According to Property Magazine, the firm reports that £5.7 billion worth of UK hotels have changed hands so far in 2015, with the H1 total 76.8 percent higher than the same period last year at £3.5 billion. High profile portfolio sales such as the LRG2 portfolio of Holiday Inn hotels (£225 million) have played a key role in this.
Savills expects a further £1.6 billion worth of portfolio sales to complete in the final quarter or early part of 2016, including the £1 billion final portion of the LRG portfolio of IHG branded hotels.
Notably, this increase in activity is forcing downward pressure on yields, with the greatest compression seen in the franchised hotel sector where yields now range from 5.5 percent-8.5 percent compared to 6.5 percent-10 percent in 2014.
In terms of UK institutions, Savills reports that hotel investment is increasingly being seen as mainstream with acquisitions by UK institutions reaching an all time high of £1.2 billion last year. More than 93 percent of institutionally owned hotels are tenanted by a lessee, which indicates a clear preference for this type of asset. The biggest barrier to entry for institutional investors is therefore the fact that 80 percent of UK hotels are owner occupied or third party managed. In order to satisfy appetite for hotel investment, UK institutions are looking to new brands and concepts such as serviced apartments. Notable examples of this includes LaSalle Investment Management’s £9.6 million purchase of Staycity in Deptford.