Investors have £5 billion appetite for UK hotel sector
The UK hotel sector last year experienced a substantial uplift in investment activity, with investment volumes reaching £5 billion increasing 35 per cent year on year, including over £2.5 billion from foreign investors. This was in addition to the sector achieving strong RevPAR levels, robust growth in GOPPAR and an increase in occupancy rates nationwide according to the latest research by global property adviser Knight Frank.
The success is built on strong fundamentals underpinning the sector, including a strong surge in portfolio activity and portfolio break-ups meaning larger single assets being available to the market and a strong hotel trading performance, both in London and the regions.
The weakened pound has continued to draw greater than anticipated tourist numbers and also invited more domestic staycation holidays, which has ensured that occupancy rates have grown, with the regions seeing record high occupancy rates of 77 per cent.
Julian Evans, Head of Healthcare, Hotels & Leisure at Knight Frank, said: “The UK hotel sector has witnessed a strong fourth quarter and overall a successful year, with a stable trading performance and a positive year of revenue and profits, underpinned by the strong boost in tourism and increased overseas investment, which we expect to continue into 2018.
“We predict that we will also see infrastructure funds and global investors start to acquire UK hotel portfolios as seed platforms for REIT targets, as they recognise the secure long-term income and covenants offered by the sector, with net initial yields currently at their lowest level on record, and that the debt market will therefore remain highly competitive in the year ahead.
“However we anticipate that the resilience of the UK hotel sector will be persistently scrutinised in the uncertain times ahead and that growth in trading performance indicators is likely to be at a slower rate in 2018 than in the last year.”
The Spring Market Overview: UK Hotel & Leisure Property 2018 has demonstrated that 2017 was a positive year for revenue and profit performance for UK hotels, demonstrating the resilience of the sector despite an uncertain economic landscape. It forecasts that the year ahead will see modest growth in key trading performance indicators, albeit at a slower rate than in 2017, but due to the continued growth in tourism and secure income stream, the sector remains a compelling proposition for investors.
Knight Frank predicts that despite current economic uncertainty, the sustained and solid income generated from the hotel sector is likely to continue to drive further investor appetite over the next 12 months due to continued growth in RevPAR and GOPPAR in 2018. This comes as investors seek long-term resilient asset classes, which provide strong economic fundamentals and income security.