Savills reports, hotel investment skyrockets in Scotland as GBP plunges in H1 2017

M&G Real estate acquired the Marriott Courtyard Edinburgh for £23.2 million.

According to Savills, investment in hotels in Scotland has boomed in the first half of 2017, already matching the entirety of investment in 2016. The property company said that around £118 million has been invested into Scotland's hotels sector in the first half of the year, in line with the £119.7 million total achieved last year.

"Hotels in UK regional cities are in high demand with overseas investors-fueled by the relative weakness of sterling, resulting in advantageous exchange rates, and the sharpness of yields in prime markets, providing owners with the opportunity to sell very comfortably just now," Steven Fyfe, associate in the hotels team at Savills Scotland, said in a statement. "The beneficial knock-on effect is that purchasers of regional and provincial hotels are encountering increased competition from foreign buyers, which increases the focus on alternative hotel stock available."

Edinburgh is still the key market for hotels, Savills said, accounting for 75 percent (£88.9 million) of year-to-date volumes. "Edinburgh remains the most sought after hotel market in the UK outside of London where occupiers and investors are keen to increase their presence by virtue of size, various brands and new concepts," Fyfe said. Key deals include the forward funding acquisition of the Marriott Courtyard Edinburgh for £23.2 million by M&G Real Estate in April and the ground lease sale and leaseback of Safestay Hostel Edinburgh at a net initial yield of 2.46 percent.  

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The report showed that overseas investors have been particularly active in Scottish markets, despite the prospect of potential disruption from Brexit and Scottish independence. Non-UK investors have spent £46 million across six deals—almost six times higher than that seen in 2016 (£7.8 million). In Edinburgh, these include U.S. company PGIM's acquisition of Safestay Hostels, British Virgin Island-based International Hotel’s buying of Holiday Inn Express and a U.S. investor’s purchasing  of The Bonham Hotel. Elsewhere, Chinese group Creation Gem International has acquired The Isle of Eriska Hotel and Spa while 7 Hospitality of Singapore has bought Dundee's DoubleTree Hilton. 

An Indian investor snagged The Newton Hotel in Nairn, Scotland this year. 

Savills also noted that the Newton Hotel in Nairn and a Highland Heritage portfolio have been purchased by Indian investors this year. The firm says this reflects a wider national trend, which sees that investment by international buyers in 2017 total £1.2 billion, up 13.7 percent on full year 2016 levels. That is in comparison to the £822 million transacted by domestic investors. 

Operationally, Savills said the Scottish market is polarized around the budget and luxury sub-sectors. Low cost lodging accommodation, such as limited service hotels and hostels, is popular with travelers in Scotland, who are on a budget, the firm said. Meanwhile, the four- and five-star sector is benefitting from higher spending guests seeking high amenity and comfort accommodation. 

"There has always been a four-figure pipeline of new rooms in Edinburgh, but demand is such that the city can easily absorb new supply as owners and managers note an ever longer 'peak season' for business," Fyfe added. "In particular we expect the arrival of the W Hotel will trigger other high-end operators to do the same. Meanwhile, Glasgow's improving leisure scene, including the Hydro Arena, part of the SEC, has seen the city's hotel sector evolve to accommodate more than just business tourism."

Savills noted that key developments in Glasgow include Motel One which, with 374 rooms will be Scotland's largest hotel by room numbers, and the first Radisson Red in the UK, with 176 rooms, opening next to the SEC. Both developments are due to launch in Q1 2018. 

"The UK hotel market has had a strong start to the year as the sector remains resilient to the headwinds of the last six months," Martin Rogers, head of UK hotel transactions at Savills, said. "The favorable exchange rate has attracted overseas buyers that are looking for stable, long term income. The anticipation of a softer Brexit will provide further comfort, encouraging development and relieving pressure on staffing."

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