UK hotel investment defied Brexit uncertainty in 2019 with investment reaching £6 billion

Knight Frank says activity levels was supported by strong demand from investors seeking long term secure income streams, record levels of institutional investment, and growing preference for alternative property types. The average transaction price per room throughout the UK remained on par with 2018 prices at £168,000 per room

Furthermore, a sizeable weight of capital continuing to target the UK, with hotel real estate a prime investment target, according to Knight Frank. Investor awareness of the growing demand for experiential travel and location-based experiences are further driving investment in the sector.

Hotel investment topped and tailed the year. The first quarter of 2019 saw the greatest share of deal volume, with £2.6 billion of deals completing during the first three months, driven by a significant volume of portfolio activity. A lack of clarity over the UK’s position outside of the EU, combined with a turbulent political climate, led to minimal investment during Q2 and Q3, as investors deferred their investment decisions. During the final quarter of 2019, hotel investment once again turned up a gear, with some with £1.5 billion of deals completing, equivalent of 25% of the total transaction volume.

Philippa Goldstein, hotel analyst at Knight Frank, explains:  

 “In 2020, we can expect investors to become more confident following the Conservative party’s recent victory, albeit caution is likely to grow if no extension to the end date of the transition period on 31 December 2020 is sought. We anticipate that 2020 will see an increase in stock becoming available, with hotel investment volumes having the potential to extend beyond the 3-year average of £6.3 billion. Key to achieving this goal is the UK remaining attractive to overseas investors, with increased investment likely from Thailand, Japan and the Middle East. However, we remain alert to the continuing risks of the Corona Virus and its potential to cause a global slowdown in travel.

“London’s position as one of the world’s most liquid and transparent real estate markets is expected to drive continued new pools of opportunistic investors to the UK, with hotel real estate a prime investment target.’

London recorded a subdued level of investment in 2019, with investment of £2.7 billion, representing a decline of 11% year-on-year. This is due to the quality and number of assets coming on the market, with smaller and lower value hotels transacting. Nevertheless, the level of investment in 2019 is equal to London’s 5-year average investment volume and is 10% higher when compared to 2017 volumes. London’s share of total UK hotel investment volume increased to 43%, boosted by the £1 billion sale of the four Grange hotels.

The total volume of hotel transactions in regional UK equated to £3.2 billion, a decline of some 20% compared to 2018, but equalling the level of investment recorded in 2017. A sharp decline in portfolio transactions was the underlying catalyst for the significant fall in regional UK investment in 2019. Portfolio transactions represented 35% of total regional investment, (compared to 53% in 2018), with the transaction volume declining by 47% to £1.1 billion.

However, in regional UK the average transaction price per room in 2019 increased by 20% year-on-year, to £146,000 per room. With growing demand for long-term, secure income streams, the average transaction price for a fixed lease asset increased on average by 35% year-on-year, to £123,000 per room. Assets selling with vacant possession, witnessed growth of 7%, to an average of £147,000 per room.

james.wallace@realassetmedia.com