The UK hotel sector witnessed an exceptionally strong level of investment activity in 2017 reaching €6.1bn (£5.5 bn). This was €2.2bn (£2bn) above the 11-year average and a 44% increase on the previous year with the regions particularly experiencing significant increases in investment, according to the UK Hotel Capital Markets Investment Review 2018, the latest research by global property adviser Knight Frank.
Private equity investors ranked as the leading investor type, with investment totalling €1.7bn (£1.5bn) whilst overseas investors accounted for over €2.6bn (£2.3 bn) of investment. This comes amid confidence in the UK hotel sector despite Brexit, as investors take advantage of an increase in overseas visitors to the UK and a period of robust trading, in addition to the favourable exchange rate and currency fluctuations.
The UK regions experienced a strong boost in investment levels, with their share of investment volumes increasing to 56% and the number of deals transacted in the provincial markets four times higher than in London. The capital witnessed a 70% increase in investment volume (excluding development) to €2.3bn (£2.1bn) and a 45% increase in the value of the average room transacted.
The attractive risk-return profile of the hotel sector, combined with the opportunity for diversification and favourable demographics have given rise to strong demand by institutional investors for hotel investments involving fixed, variable and ground leases.
Henry Jackson, Head of Regional UK Agency at Knight Frank, commented: “The UK hotel sector in 2017 experienced a strong performance and with positive fundamentals and evidence of a strong transactional market already in 2018, there is a good reason for the optimism to continue. Despite the continued opacity over the outcome of Brexit and the political volatility that will follow, combined with government plans to force overseas investors to pay capital gains tax on commercial property from April 2019, the weight of money continuing to target hotel investment is significant. Although investment activity in London is likely to continue to remain somewhat subdued this year, 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.”