Investor appetite for hotels, particularly from overseas buyers, saw major growth last year as investors look for alternative assets and diversification within the UK’s real estate market.
The latest report released by Savills looking in detail at the country’s hotel market reported that transaction volumes had reached £5.4m in 2017, which was a 32% leap from 2016’s levels, with much of the interest continuing to come from foreign investors looking to take advantage of the weaker pound.
Brexit has proven to be little deterrent to such investors, and while London has historically been the main focus, it seems that regions outside are now beginning to dominate the market – Manchester in particular was the top performer, with £178.6m worth of hotel investments made in 2017.
Investors looking outside London
Manchester and other key parts of the north have seen stronger real estate growth in recent years as the London market begins to cool, which has been reflected across the residential, commercial and other sectors.
Investment from Europe reached £763m in 2017, while North American investors spent £682m in the hotel sector. In terms of transaction levels, Asia Pacific topped the chart with 20 acquisitions in total, worth £446m, with Singapore proving one of the most active parts with 15 transactions at £315.3m.
Savills also reported a rise in interest for leased serviced apartments, as well as branded hostels and new hospitality “concepts”, with more options aimed at the rising “youth traveller” market.
New concepts for increasing profitability
The report says: “From an investor angle, the ability to maximise the yield from a single room is particularly attractive. So too are the higher margins typically associated with the segment due to its lower operating costs.”
A new concept that originated in the Netherlands – the Student Hotel – could also be set to hit the UK, which offers a flexible space incorporating a hotel, hostel and student accommodation in order to increase appeal as well as potential revenues, as it would also reduce the peaks and troughs seen due to seasonal demand.
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The “blurred spaces” concept, which is covered in the Savills report, looks at how hotels are increasingly trying to maximise the usage of their spaces as another way of raising revenues. For example, offering communal spaces in hostels to make them more attractive, providing a food and drink service for non-guests either through corroboration with third-parties or leasing the space, as well as teaming up with companies to provide flexible co-working spaces as modern working continues to take hold.
The report concludes: “The real issue facing transaction volumes in 2018 will be stock availability. The regions are expected to dominate activity again this year due to greater availability relative to London, albeit even the regional markets could see fewer assets come to the market.”
