UK hotel investment at eight-year high

2014 was a good year for UK hotel investment. Really good. According to real estate advisor Savills, transaction volumes in the UK hotel market reached £6.1 billion last year, an increase of 55 percent over 2013 and the highest level since 2006. And 2015 could even be better.

Savills noted strong and renewed investor confidence in regional markets, outside of London, as as a key driver behind the overall growth. A reported 71 percent of deals took place outside the capital city.

That's not to say London wasn't strong. Quite the contrary—especially in value terms. Savills said that 60 percent of single-asset transaction volumes were in the city in 2014.

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The UK also saw an increased appetite for portfolio deals, accounting for 53 percent of all hotel investment in the UK in 2014, and totaling £3.2 billion.

Some of the larger deals include KSL Capital Partners' December acquisition of the Village Urban Resorts hotel chain from De Vere Group in a deal reportedly valued at £485 million or around US$761 million; and Chow Tai Fook Group's purchase of the 237-room Marriott London Grosvenor Square Hotel in central London for $207.92 million.

Martin Rodgers, hotels director at Savills, told Hotel Owner: "Investor demand returned with gusto in 2014 and we expect it to remain strong in the year ahead. In London, the demand and supply imbalance will put downward pressure on yields while regional activity is likely to be fueled by the break-up of portfolio purchased in recent months."

To get a firsthand look at what is going on, Big Hospitality spoke to some UK analysts and consultants for their takes on how 2015 is shaping up. Here are a few. After a year of rising foreign investment, increased hotel transactions and continued threat from OTAs and the sharing economy, what lies ahead for the hotel industry in 2015? We asked some industry experts for their predictions.

Melvin Gold, hotel industry consultant: Whereas 2014 will be seen in many ways as the years of the hotel portfolio transaction, and there is still activity that will fall into next year, I think 2015 might be seen as the year of property investment and revival.

Joe Stathe, information and intelligence manager, EMEA at CBRE Hotels and Jonathan Langston, senior director at CBRE Hotels: It is going to be an exciting year for hotel investment, as we see an unprecedented number and variety of investors gearing up for a big 2015. The positive trading performance outlook for the UK’s hotels along with its continued economic stability will ensure that the country continues to see high levels of transaction in the coming year.

Jon-Paul Davies, director at independent hotel group Heritage Estates: I believe that 2015 will see a splinter effect pushing its way straight through the middle of the hospitality industry. On one side, you have the large, private equity backed hotel groups, who will be streamlining their portfolios and gravitating towards bigger properties in key localities, such as London, where high room rates and strong occupancy are a given. On the other side of the divide are the smaller independents, such as ourselves, and mid-size operators looking to expand. There has been a significant rise in these kind of businesses in 2014 and those at the helm will continue to be forward thinking and aspirational in 2015.

Russell Kett, chairman, HVS London: Major hotel companies will consolidate more. All the major hotel companies want to grow their businesses, both in terms of profitability and in physical terms – increasing the number of hotels in their chains. New owners / franchisees will not be attracted to join a declining brand.  So hotel companies have to keep pushing the ‘expand’ button.


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