UK sees post-election interest

London skyline
London accounted for close to 50% of transactions

There has been an increase in investor enquiries following last year’s General Election, according to Savills.

The comments came as HVS said that, on the operations side, UK hoteliers faced a tough year in with a growth in rooms supply, increasing competition and dampening revenues despite underlying demand remaining strong.

HVS said that average room rates should continue to grow, leaving overall revpar flat.

HVS London chairman Russell Kett said: “Hotels in the UK Provinces found 2019 challenging and there seems to be little opportunity to improve this performance in 2020.

“The pipeline of new hotel openings will continue to add further pressure to many hotels which have experienced a decline in occupancy and average room rates, sometimes both. Once the current pipeline has worked its way through and post-Brexit demand levels have picked up positive growth should be seen as we move into 2021 and 2022.”

The company said that hoteliers needed to ensure that as many areas of their hotel as possible were income producing in order to deliver a proper return on investment. A minimum of 15%, but preferably 20% profitability should be sought from F&B operations, for example, with under-performing areas of a hotel developed to provide overnight guests and non-residents with a well-designed range refreshment options that make money.

At Savills, the broker said that it expected to see more stock coming to market this year, led by the budget and four-star segments. The company said that the volume of investment into London hotels could reach record levels in the first quarter of 2020, with approximately £1.5bn expected to transact in the capital.

Rob Stapleton, director, Savills Hotels team, said: “Investor confidence in the UK hotel market remains high and while political uncertainty in 2019 had an impact on overall deal volumes, yields remained low highlighting that, for the right assets, the UK continues to be a key focus for emerging hotel brands and international capital.

“We have already noted a marked increase in investor enquiries since the General Election result and anticipate this to translate into increased investment activity across the UK hotel market in 2020, with several notable transactions expected to transact in the first half of the year."

The group said that Savills UK hotel transactions reached £4.64bn in 2019, down 42% year-on-year but 11% above the 10-year average. The number of transactions across the country was also down 47% year-on-year and 6% below the average.

Overseas investors accounted for 59% of market share, with the top three by country: Hong Kong (c. £1bm), Thailand (c.£450m), and Israel (c.£260m). Portfolio transactions accounted for 52% of investment activity in the UK, close to flat on the previous year.

London accounted for close to 50% of all UK hotel investment activity. 

Tim Stoyle, head of valuations, Savills Hotels, said: “Looking forward to this year we expect to see more stock coming to market across all grades of accommodation but primarily driven by demand for the budget and four-star segments.

“Demand for these assets in London and in core locations across the rest of the UK will be underpinned by the operational performance resulting from the growth of the staycation market, as well as the continued growth in international tourist numbers.”