UK Hotel Investment Trends – Summer Update
40% increase on previous year so far, but what trends are emerging?
Although international travel restrictions have eased, disruptions in travel, as airlines and airports struggle to scale their operations back to pre-pandemic levels, has made many holiday makers reconsider their travel plans this summer. The Great British Staycation trend looks set to continue for another bumper year. This strong domestic performance is driving increased investment in well located, efficiently run hotel business which are often seen as a less volatile option than real-estate, with year round returns on the right properties.
According to Knight Frank, this increased investment has already seen a 40% increase on 2021 in the first four months of 2022 and with trends continuing to point in the same direction, this is likely to continue. Portfolio transactions have seen the biggest increases in this period with some highlights including the regional sales of The Pig Hotel Group and The Inn Collection. London has seen a similar level of the sales in the same period with the purchases of Point A Hotel and the Hilton London Olympia.
While Investment in regional and London hotels has been relatively evenly distributed in 2022, this has not been the case in recent years. 2021 saw more that 60% of all investment took place in regional parts of the UK with Edinburgh being the highest performing city outside of London.
Last year, Edinburgh took 15% or all regional hotel investment capital excluding London. Three transactions in particular accounted for nearly half of this as Courtyard by Marriott Edinburgh, Adagio Aparthotel Edinburgh and Macdonald Holyrood Edinburgh all changed hands. But what effect will the recent announcement from the governing party in Scotland, the SNP, that they will push to hold a second independence referendum in October 2023?
In 2014, when polls were warning of a possible Yes vote prior to the first Independence Referendum, investment in the UK shrank as banks warned of a Sterling collapse. The field of play is certainly very different now with the UK having left Europe, the world recovering after a pandemic and inflation at a 30 year high but we may still be able to learn from these trends. The five years after Indyref1 saw a huge increase in international investment in Scotland as UK investors hesitated to immediately step back into the region.
The announcement in June that Accor is entering exclusive negotiations to sell 10.8% stake in Ennismore for £159m to a Qatari group proves that innovative, commercially minded lifestyle brands are proving to be very attractive to international investors. The ability for brands to adapt to, and in many ways drive the change in, an ever evolving and competitive market raises the interest of prospective investors. This commercial mindset sees opportunities where others see obstacles and this is always very attractive.
Another area that has raised the interest of potential investors are Aparthotels and serviced apartments. As mentioned earlier, real estate values can fluctuate wildly in uncertain time. While well run hotels can offer a much more consistent return than real estate, Aparthotels offered much more operational resilience during the pandemic and the and have the ability to switch to mid and long term let more easily. According to Savills, the supply of serviced apartment stock across Europe is set to accelerate, with supply forecast to expand by 21.2% over the next three years. London and Munich are seeing the highest levels of demand, but the regional UK cities Manchester and Belfast are both sitting at number 5 and 10 in Savills’ outlook. In a market still dominated by a small number of brands including Staycity and Adagio Apartments there is a huge opportunity for new and existing operators to leverage private equity, expand and grow.
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