HVS: London is seeing property boom; hotel sector poised to grow

HVS is reporting that London is in the middle of a property boom and that the city's hotel sector is set to keep growing into one of the world’s leading markets. 

An HVS London Update breakfast seminar held in late June was attended by more than 70 hotel operators, analysts and investors. Charles Human, managing director of property specialist HVS Hodges Ward Elliott, presented a positive outlook for the capital, prompted by a population increase that is currently higher than that of either New York or Paris.

“London has a shortage of hotel stock on the market, which pushes both demand and prices higher and means that development costs are lower than acquisition costs," Human said. "The capital also has a high proportion of poor quality hotels which needs replacing – either as hotels, or residential units.” 

Since the financial crisis, he continued, London's hotel scene has seen a "strong return," and, with the exception of Paris, London is the only European gateway city outperforming its peak pre-crisis RevPAR levels. In 2013, London was the most invested city in the world in terms of commercial real estate. 

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Lending for hotel development had become easier to access with more competition among established lenders. However, most of the key deals in London hotels had been secured on an all-cash basis with the intention of future refinancing when the time is right. 

As London itself spreads – with expansion towards the East and the South, hotel development is shifting towards new areas, particularly those with high corporate and residential growth such as the East and North.

In a discussion chaired by HVS chairman Russell Kett involving senior executives from Starwood Capital, Precis Holdings, citizenM and London & Regional Properties, the panel debated how it is leisure rather than corporate demand that is currently of more interest to hoteliers, as corporate rates have been relatively static over recent years. 

This is an advantage to the sector as leisure demand is easier to yield than corporate rates, which have little flexibility due to last-room availability and fixed contracts. 

Tourism in the capital is expected to see further support from increased Chinese demand as an improved visa procedure is implemented for Chinese visitors.