Brexit clouds London hotel scene

Travelodge London Central Euston
Travelodge London Central Euston. Photo credit: Travelodge

London has long held a reputation for being on the cutting edge of culture and this is no less true in the hotel sector, where new concepts often debuted in the capital.

However, pressure from Brexit producing waning investor interest, the lack of suitable sites in London and competition from other sectors such as student housing, the private residential sector and offices has become a key issue for hotel companies and developers, who have taken different routes to growth, including through office conversions. 

Still, London is set to add more than 11,000 new hotel rooms by 2020, according to The London Hotel Monitor Report 2018, published by JLL and London & Partners. 

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The study indicated approximately one-third of the expected pipeline is in the upscale segment, with economy hotels making up 26 percent of total future supply, followed by upper-upscale hotels with 22 percent.

Hotel companies also are developing their own lifestyle brands, trying to capture a share of new traveler markets and London has witnessed the rise of such brands first hand. Many new brands have entered the capital city’s hotel market over the past couple of years, including The Ned, CitizenM, Moxy, Ace, Edition and serviced-apartment brands such as Locke.

Hilton recently selected London for one of the first hotels under the megachain’s new Motto brand.

“London was a natural choice for one of our first Motto by Hilton hotels,” said Tripp McLaughlin, global head, Motto by Hilton. “It as enduring appeal as an international travel destination and Marylebone is a neighborhood where our target guests want to be. In prime central London space is at a premium and Motto’s competitive advantage includes efficient build costs; highly engineered, flexible guestrooms; and multiple revenue opportunities in the public spaces,  making it a compelling brand for owners seeking premium returns.”

Graham Craggs, hotels and hospitality managing director, JLL, said: “It’s about being able to accommodate the global nomads seeking more of an experience from their stay. And the use of design, technology and space is at the heart of providing them with a comfortable and memorable stay.

“London’s hotels will continue to be in high demand, especially among visitors from the likes of China and India. There will be more openings in the coming months as more brands compete for affluent visitors, yet the most successful hotels will be those that best adapt to changing traveler tastes and preferences and meet their desire for experiences,” said Craggs.

The comments were made as concerns over Brexit saw a softening in prices for London hotels. Knight Frank reported for the year-to-date in London, the average price per room had fallen by 20 percent equating to around £240,000 per key.

Philippa Goldstein, hotel analyst at Knight Frank, said: “Whilst London remains a key gateway city in Europe that will continue to benefit from the growth in international travel, the recent decline in volume of single-asset transactions is evidence of the continued and prolonged uncertainty relating to the outcome of the Brexit negotiations.

“Whilst investors are becoming increasingly vigilant in their due diligence, a further trend to have emerged to date in 2018, particularly in London, is the growing number of single-asset transactions taking place [that] have involved experienced, long-term investors who understand the cyclical nature of the hotel market and have the commitment, confidence and knowhow to invest,” she said.

While caution is growing in investors, supply continues to build in London. The variety of brands and offerings in London helps make the capital an invigorating place to visit, but if investors fail to see adequate returns or issues in selling their asset when they are ready to move on, that dynamic environment is at risk. 

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.