The City Scene: London Market Update

London

In the first of IHIF's and JLL's look at European markets, we put Berlin, host city of the International Hotel Investment Forum, March 7-9, under the microscope. In Part II, we look at one of the world's most bustling cities and one where hotel investment never sleeps: London.

London has once again been hailed the world’s most popular tourist destination by the MasterCard Global Destination Cities Index, welcoming 18.8 million international visitors in 2015. Served by five international airports, and with direct links to European cities via Eurostar, London truly is a global gateway city.

London also remains one of Europe’s best-performing hotel markets, with occupancy averaging around 80 percent on a per annum basis. Although 2015 got off to a slow start, the second half benefited from the Rugby World Cup, when three London venues hosted a number of games, adding £4 to average rates and pushing RevPAR to end the year at £118.

Budget Supply Blooms
In terms of hotel supply, there are currently around 1,500 hotels in London totaling around 140,000 rooms. Although the majority of current supply sits within the four-star segment, there has been a boom in budget hotel openings over the last few years and Travelodge and Premier Inn—both budget brands—have the largest presence in the capital. Looking ahead, during 2016, around 7,000 new hotel rooms are set to enter the market, with the majority in the budget sector. Much of the new supply in recent years has moved to the outskirts of the city, following development trends in other real estate classes, into areas such as Shoreditch and Docklands.

Investor Appetite
With strong trading fundamentals, ever-growing visitor arrivals and strong hotel pipeline, it’s no wonder that London is on the wish list for investors. Cash-rich investors from Asia Pacific and the Middle East are keen to secure their footprint in the capital. In 2015, hotel investment volumes in London reached a total of £3.5 billion, a huge leap compared to the £1.5 billion reported the previous year. During the first half of the year, transaction volumes exceeded £2.3 billion—a result never before recorded in the UK capital. However, note that the majority of this came from the sale of the Maybourne Hotel Group to the Middle East sovereign wealth fund Constellation Hospitality LLC. In addition to this mega-deal, a number of other notable hotels were sold during the first half of the year, including the St. Ermin’s Hotel and Ace Hotel London Shoreditch. The second half of the year, while not nearly as strong as the first, also saw a number of notable deals, including the sale of the Holiday Inn Kensington Forum, sold twice in only a matter of days.

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The Last Word
Will Duffey, Executive Vice President, Northern European Investment Sales, JLL, commented: “2015 was an exceptionally strong year in terms of hotel transactions in London and on a global scale. While transaction activity will remain high throughout 2016, the trend will shift toward single-asset transactions. Underlying market fundamentals continue to be positive, and the outlook for hotel performance in London is promising.
“New infrastructure developments in London, such as Crossrail and Thameslink, continue to drive regeneration and unlock interest into hidden corners of the capital. Not only is this likely to heighten visitor demand and trading performance in the future, it will also aid the absorption of new supply. We have already seen a shift to the East in terms of both new hotel supply and investment, and this is a trend we expect to continue in the near future.”

For more information on hotel investment markets across EMEA, visit www.jll.eu/hotels-intelligence-hub

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