UK hotel investment set for 9-year high

Investment transaction volumes in the UK hotels market could reach £8.5 bn (€11.6 bn) by end-2015 and surpass the peak of 2006, according to Savills.

The forecast marks a 39% increase on 2014’s post recession peak of £6.1 bn and marginally exceeds the record total of £8.3 bn in 2006.

Savills reports that £5.7 bn worth of UK hotels have changed hands so far in 2015, with the H1 total 76.8% higher than the same period last year at £3.5 bn.

High profile portfolio sales such as the LRG2 portfolio of Holiday Inn hotels (£225 million) have played a key role in this. Savills expects a further £1.6 bn worth of portfolio sales to complete in the final quarter or early part of 2016, including the £1 bn final tranche of the LRG portfolio of IHG branded hotels. This increase in activity is exerting downward pressure on yields with greatest compression seen in the franchised hotel sector where yields now range from 5.5%-8.5% compared to 6.5%-10% in 2014.

Savills also noted that regional transactions have dominated the UK hotels market so far this year, accounting for more than 78% of the total. US private equity houses have been behind 65% of hotel acquisitions in the regions (spending £2.1 bn), with key deals including Lone Star’s acquisition of the Jury’s Inn portfolio for £676 mln. While US investors have remained the most acquisitive overseas buyers of regional hotels, this is down on the 90% share they held in 2014.

Marie Hickey, commercial research director at Savills, commented: 'Availability constraints in London have attracted new overseas buyers to the regions, including Asia Pacific investors who have acquired more than £1 bn worth of regional hotel assets so far this year. Frasers Hospitality’s purchase of the Malmaison and Hotel du Vin portfolio at £363 mln is a good example. While there were no country house hotel acquisitions by Asia Pacific investors in 2014, we have already seen five this year.”

Rob Stapleton, hotels investment director at Savills, added: 'The UK hotel investment market is on course for a record year as the appetite among overseas and domestic buyers in both London and the regions shows no sign of waning. With yields close to or at their pre-recession peak, further downward shifts will be constrained but we expect transactional activity to remain robust as the operational markets continue to show growth and portfolios acquired over the last four years are broken up.'