London's hotels attract global investors

(London tops for transactional activity)

London’s hotels are hotter than ever. According to Savills, investment into London’s hotel market reached £1.1 billion—55 percent of the UK’s overall total of £2 billion. What’s more, 68 percent of that investment (or £756 million) was international. 

Savills credits a strong tourist market, narrowing yields and a weaker pound for the boost. Initial yields for prime freehold hotel investments in London are currently between 3.85 percent-4.25 percent, compared to the end of 2016 which saw them at 5.13 percent.

London assets have proved popular with Asian investors as the most active investors for the first half of the year originated from Hong Kong, Malaysia and Singapore. Indian operators are also looking to gain a foothold in the city.

Key deals in the first half of the year include the purchase of the Threadneedles hotel in the City of London by Malaysian firm YTL Hotels, the acquisition of the Levin hotel and the Capital hotel by U.S.-based Warwick Hotels and the sale of South Place Hotel by Frogmore.

“There has been an increasing diversification in the origin of the capital being deployed into London as it continues to be seen as an investment safe haven,” Amy Farrugia, senior analyst in the hotels team at Savills, said in a statement. “We expect Asian capital to continue its high level of activity to the end of the year although there is a severe shortage of quality assets priced between £20 to £100 million in the capital.”

“With capital values now standing so high and with growth relatively subdued, we expect to see owners that purchased before 2015 starting to look to sell,” Gary Witham, director in the hotels team at Savills, added. 

Looking ahead, the firm predicts that investment into the London hotel market will reach £2.8 billion by the end of 2017 and the UK hotel market will transact circa £5.1 billion for the full year, up 28 percent on the 2016 total of £4 billion.