The basis behind buying unencumbered assets in London

London tops for transactional activity
Image: ©iStock / heyengel

As we noted last week, the UK reported a record number of hotel bedrooms opening in the UK since 2012. The sale of 1,849 Hilton-branded rooms in the UK underscored the popularity of the brands to investors, but, as demand for independent hotel grows, so too does appetite from investors for properties unencumbered by a flag. 

Hotel Bulletin Q2 2017 reported that more than 7,500 hotel bedrooms had opened during the first half of 2017, the highest first-half figure since 2012 and over 40 percent higher than the same period last year.

Transactions followed pace, with values in the second quarter totaling £1.2 billion, of which £700 million related to portfolio transactions. This was significantly higher than the £500 million worth of transactions that took place in the first quarter of the year, and an uplift on the £1.0 billion in the first half of 2016.

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The study came as Henderson Park Capital agreed one of the largest deals in the UK hotels market this year with the acquisition of the 1,059-room Hilton London Metropole and the 790-room Hilton Birmingham Metropole from the Tonstate Group, for an undisclosed fee, reported to be £500 million. The hotels were thought to have been bought to market with aspirations around £700 million, but remain above the £417 million paid by Tonstate Group when it bought the properties from Hilton in 2006.

“The sale of The Metropoles is a clear signal to the market of the continuing strong desire for London and UK hotels from the international investors,” Paul Kapiris, director, CBRE Hotels Investment Properties, which brokered the deal, said. “This year we have seen a 12.2-percent increase year-on-year in room revenue in London, and this increased performance is translating into increased demand from global hotel investors. Despite geopolitical uncertainty and an increase in hotel openings, London still remains a key market for hotel investors.”

The hotels are expected to remain under the Hilton branding.

Independents vs. Brands

HVS London Chairman Russell Kett pointed to “notable activity” from independently branded hotels, including the opening of The Ned, in the City of London, by Soho House as well as plans for a 214-room Hoxton Hotel in London's Shepherd's Bush.

“While there will always be a strong demand for branded hotels, we are certainly seeing a growing appetite amongst hotel guests, primarily those in London, for something a little different,” Kett said. “Boutique hotels in quirky buildings with a strong stamp of personality and a more unusual proposition are becoming very fashionable amongst discerning customers.

“A recognized brand name is less important in London as it's a strong market. The new, independent hotels emerging like the Hoxton benefit from their association with Soho House for their restaurants and bars; and The Ned benefits from its co-ownership by Soho House.”

“Buyers now prefer a hotel to be unbranded and it helps create competitive tension during a sale to keep the options open,” Carine Bonnejean, head of consultancy – hotels, Christie & Co., told HOTEL MANAGEMENT. “What owners really want right now is a franchise with a third party.”

With, we understand, more portfolios set to come to market in the coming months, there will be plenty to keep investors busy. Whether there will be plenty to keep the brands busy to remains to be seen.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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