Brexit encourages South African investment in United Kingdom

London

We have by now seen the ramifications from the Brexit and its budding impact on hotel investment in the United Kingdom, Ireland,and even on Asia; it is also now driving investment from Africa.

To wit, South Africa's Tsogo Sun Holdings, which is planning to buy more hotels in the UK, where a weaker pound has made assets more reasonably attainable. "We've put about 500 million rand into the UK market, which is doing quite well for us and I think we're going to put in more money," CEO Marcel von Aulock told Reuters

Notably, von Aulock said that thanks to the pound's decline in value and "uncertainty" over the UK's position within Europe's financial market, investors are seeing new opportunities. "Those UK hotel assets just got a whole lot cheaper in rands," he said.

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Tsogo Sun's International Growth

Tsogo Sun is expected to buy additional hotel properties through International Hotel Properties Limited, a European hotel investment of the group in which it holds a 25-percent stake, and which owns eight hotels in the UK.

In the last seven years, the owner of Montecasino and Gold Reef City has spent over 20 billion rand expanding the business, and the current total project pipeline is about 6 billion rand, Von Aulock added.

The move is not only logical in terms of opportunity, but also in terms of building brand awareness with a growing demographic. The UK is one of the top 10 countries for inbound tourism to South Africa, and visitor numbers from the UK to South Africa increased by almost 10 percent between August 2015 and August 2016. With more British travelers aware of Tsogo Sun in Africa, they will be more likely to stay at one of the company's hotels in other regions—including throughout the UK.

Beyond South Africa, Tsogo Sun operates in Nigeria, Kenya, Zambia, Tanzania and Mozambique, making it the biggest hotel and gaming operator in the continent. It also has properties in the United Arab Emirates and the Seychelles. Perhaps most significantly, Tsogo Sun both owns and operates almost all of its hotels, keeping the business firmly in-house, as Belinda Pedersen, the company's general manager of international sales, told HOTEL MANAGEMENT last year. At the time, Pedersen also said that Tsogo Sun was not planning to own or operate any hotels in Europe. 

The company expects trading conditions beyond the UK to remain under pressure due to a weak economy in South Africa and many of the commodity-focused countries in which it operates. "Growth will depend on the future performance of these economies as well as the level of policy certainty in South Africa," von Aulock said.

All Eyes on the UK

Tsogo Sun is far from the first international company to make a move on the UK's hospitality scene, although much of the interest has come from Asia. Earlier this month, UK Prime Minister Theresa May and Chancellor of the Exchequer Philip Hammond met with Chinese Vice Premier Ma Kai in a move to attract Asian funding for UK developments. And just days after the vote, King Express Development, a wholly owned subsidiary of Hong Kong-listed Magnificent Real Estate, paid just over £70 million for the 408-room Travelodge London Kings Cross Royal Scot Hotel. Within a month, Chinese property tycoon Zhang Songqiao’s real estate investment firm acquired the Travelodge Liverpool Street Hotel in Central London from two investment holding companies based in Luxembourg. The hotel sold for £42.3 million—in dollar terms, nearly $8 million cheaper than before the Brexit vote. 

According to numbers from Savills released last month, UK transaction volumes over the first nine months of 2016 reached just over £3.1 billion. The consultancy company expects year-end volumes will be above the 10-year average.

Investor appetite for hotels in the UK remains undimmed [post-Brexit]," Rob Stapleton, director of Savills, told HOTEL MANAGEMENT earlier this month. “Demand for London assets is higher now than it was 12 months ago; indeed, it is across most regional markets in the UK and across all segments of the market.

“The depreciation of sterling has made the UK a more affordable market and there has been a marked increase in overseas investor activity as a consequence but there is also significant liquidity at a national level and from a diverse range of sources of capital. By the far the largest increase in appetite however is from Asian capital—from private individuals to REITs, institutions and Fortune 250 conglomerates.”

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