£5.5 billion invested in the UK hotel asset class in 2017
Global property advisor Knight Frank has reported an exceptional year for hotel real estate investment with £5.5 billion of transactions in 2017, an increase of 44% compared to the previous year and Regional UK’s share of transaction volume rising to 56%, with investment totalling some £3.1 billion.
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A plethora of investors from both overseas and the UK, combined with the wide availability and diverse sources of capital have helped fuel investment activity.
Overseas investors accounted for 42% of the total UK transaction activity, which represented over £2.3 billion of investment and demonstrated the growing acceptance by overseas investors to deploy their funds into assets located in prime regional UK cities.
Henry Jackson, Head of Regional UK Agency at Knight Frank, commented: “The UK hotel sector in 2017 experienced a strong performance and with evidence of a strong transactional market already in 2018, there is good reason for the optimism to continue.
The appetite for quality regional UK hotels will remain buoyant, with strong demand from institutional, private equity and overseas investors demonstrating a continued level of confidence in the sustainability of the UK hotel market, both in terms of income growth and driving added value.”
Private equity investors were ranked overall as the top investor type, with total investment in hotel property totalling £1.48 billion in 2017. Meanwhile, the attractive risk-return profile of the hotel sector, combined with the opportunity for diversification has given rise to strong demand by institutional investors, ranked as the second highest investor type, with hotel investment totalling £1.38 billion.
In terms of the average price paid per room, Overseas Corporate Investors were ranked as London’s highest spending investor type by transaction volume averaging £275,000 per room*, followed by Private Equity investors with an average price per room sold of approximately £190,000.
Despite the continued opacity over the outcome of Brexit, recent transactional activity is evidence that investors have confidence in the inherent structural growth of the hotel sector.
Henry Jackson continues: “Investment decisions will be determined by income security, strong covenants, potential upside and competent management, with continued growth in investment from overseas, in particular from the Asia Pacific region”.
(* The Average Price per Room excludes the sale of the Grosvenor House, a JW Marriott Hotel)