Brexit? What Brexit?
Just weeks after Hilton Worldwide announced it was planning to expand its presence in Scotland, Junson Capital, a Hong Kong-based investment company, has acquired a 378-guestroom hotel in London’s Docklands for an unconfirmed £80 million. Junson reportedly took the entire share capital of private equity firm HIG affiliate Bayside Capital, which put the hotel on the market a year ago following a major refurbishment and rebranding of the asset from the Hilton brand to a DoubleTree.
It is also the first UK hotel transaction for Junson, which has interests in real estate, financial assets and private equity.
Mark Finney, head of hotels and resorts consulting at Colliers (which acted for Junson in the deal), said that this was “the first major hotel transaction by an overseas buyer in London since the EU referendum, demonstrating that foreign capital still sees London as an attractive investment opportunity.” (CBRE and JLL also acted on the sale.)
Bayside, in turn, bought the hotel from Swedish investor Pandox AB two years ago, with a guide price of around £60 million. The hotel is located south of the river in Rotherhithe, in a former wharf building dating from the 17th century, and Hilton will continue to manage it.
Assuming the £80 million price tag is accurate, this deal would, indeed, be a significant step up from the £70 million King Express Development, a wholly owned subsidiary of Magnificent Real Estate, paid for the 408-room Travelodge London Kings Cross Royal Scot Hotel just days after the June referendum. (Like Junson, Magnificent is based in Hong Kong.) At the time, William Cheng Kai-man, chairman of Magnificent, said that the state of uncertainty following the vote helped drive the acquisition. The concerns, he said, “provided the company an ideal opportunity to get into the high-demand hotel sector in London, and the falling currency has made the deal more attractive.”
If more investors, especially from the East, feel the same way, we may see UK hotels become prime targets for Asian money in the coming months.
A month after the vote, CBRE stated that while the UK’s decision to leave the EU “will prolong a period of unusual uncertainty,” the Brexit is unlikely to hinder investment volumes.
The fluid UK hotel market will be the focus at The Annual Hotel Conference, October 12-13, at the Hilton Manchester Deansgate. A keynote from Thomas Dubaere, COO HotelServices, AccorHotels UK and Ireland, will shine more light on the UK after the Brexit. To learn more and to register for the conference, click HERE.
“The referendum result will prolong a period of unusual uncertainty for the UK economy and the hotels market more generally, and inevitably it will take some time for the full impact to be understood,” the company said. “In the short term, it is likely that some investors will defer decisions until they perceive greater stability; however, the slowing in UK hotel transaction volumes can also be attributed to the change in types of buyer and lower stock availability that has been evident in the market since the beginning of the year. The falling pound relative to the dollar and euro is likely to make UK investment opportunities seem particularly attractive to overseas investors.”
Cause for Concern
But while the deals are certainly good news for the UK’s hospitality scene, the industry isn’t out of the proverbial woods yet. The Hotel Bulletin: Q2 2016—published last month by HVS, AlixPartners and AM:PM—found that hotel occupancy in London had its sixth consecutive quarter of year-on-year decline, driving down profitability and the appeal of hotels as assets.
“The Brexit decision is having the double impact of weaker sterling and a reduction in anticipated economic growth,” HVS chairman Russell Kett said. “This is both good, and bad, news for the sector in that Britain becomes a cheaper destination for overseas visitors, dampening outgoing UK travel but potentially increasing the F&B costs as some suppliers pass on price rises. Hotel transaction activity is also likely to slow down as investors assess the outlook of future trading but in the longer term we are optimistic the UK will remain an attractive source of investment for global investors.“