Tide of new supply has not deterred investors from Manchester

Singaporean City Developments bought the Lowry Hotel for £52.5 million. Photo credit: Lowry Hotel

Manchester was second only to London in terms of investment volumes in the UK last year, according to the latest study from Savills, and that has yield-seeking investors chasing deals in the city. It's particularly becoming attractive for Asian investors with one recent deal as evidence. 

Despite a high-profile terror attack last year, Manchester has remained popular with visitors. STR reported that the city’s hotels experienced a minor year-over-year decrease in occupancy of 1.9 percent, the day after the attack, before returning to growth the following day, with an increase of 2.7 percent to 79.8 percent. 

According to CityCo, the city center management company for the city and nearby Salford, Manchester was the second most-visited city in England by domestic visitors and the third most-visited UK destination by international visitors, an increase of 30 percent between 2006 and 2016.  

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Past & Present Growth 

The city needs an increase in demand to meet the rising supply of hotels, with CityCo reporting that 2,300 new hotel rooms across Manchester city center were in the pipeline, increasing its supply by 25 percent. 

This has not deterred investors, with nine deals totaling £178.55 million signed last year, a 52-percent increase from the £117.43 million in Edinburgh, the second-highest regional city by volume, and more than double Manchester’s £83.1 million total in 2016. 

Those nine deals in 2017 were also an improvement on the six that were signed in 2016. Overseas investors were the dominant buyer type, accounting for 81.5 percent (£145.5 million) of hotel deals. This was led by Singaporean and U.S. investors, with purchases totaling £91 million and £54.5 million, respectively.  

“Manchester is a truly global city with high levels of recognition thanks to its international airports, forward-thinking city council, strong visitor numbers and numerous sporting, business and leisure events every year," Tom Cunningham, hotels director at Savills Manchester, said. "The strength of its hotel investment market is a reflection of this, and we expect 2018 to be another robust year.” 

Savills highlighted Dominvs Group’s £54.5-million sale of the Holiday Inn Manchester City Centre to U.S.-based Starwood Capital. Will Duffey, EVP at JLL’s Hotels & Hospitality Group, who advised on the sale, said that the deal was “in one of the strongest-performing markets in the UK.” Duffey drew attention to developments such as the 200-acre MediaCityUK and the £800-million Airport City development which, he said, would “continue to underpin sustainable growth across the lodging sector in this particular market.” 

Other notable deals last year included Westmont Hospitality’s £52.5-million sale of the Lowry Hotel to Singaporean City Developments, which underlined the particularly strong demand from Asia-Pacific buyers in Manchester. In 2017, 49.3 percent of all hotel acquisitions in the UK regions were by Singapore-based buyers. 

There were 1,127 individual hotel rooms sold in Manchester last year, said Savills, marking a 32-percent increase on the 854-room total of 2016. At £144,560, the average price per room was 36 percent higher than the UK average (excluding London) of £106,290. 

Northern Powerhouse

It has been three years since the former UK chancellor George Osborne launched the ‘Northern Powerhouse’ strategy, with the intention of cutting the economic imbalance between the North and South of England. National icons such as the BBC have moved to the city and recently there was even talk of Parliament moving north while renovations were carried out to the Palace of Westminster. 

Hotel investors, put off by high prices in the capital, have been looking for Brexit bargains elsewhere, and Manchester has been a key focus. The city’s performance shows no signs of falling back, even as supply increases, but one broker, who declined to be named, questioned whether, now that prominent hotels such as The Lowry had changed hands, what was left for those who would buy in the UK’s second city? 

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