Comment
Lack of debt is more of an issue for the hotel sector than some others.
Nevertheless, the lure of the London trophy asset continues to attract overseas investors The biggest single
challenge facing investors in the UK is the lack of debt. Hotels are still considered a niche area and lenders remain cautious of the operational income, which can fluctuate. This has led to a clear appetite for
leased assets, with regional hotels operating under management contracts considered too far up the risk curve for those who have re-entered the market. Demand for prime assets has also
restricted investors to certain geographies such as the South East, accounting for 68% of total volumes invested in 2011, and of this figure 80% in +-London. That said, Savills predicts a 3.9%
capital growth increase in London’s hotel sector this year with the Olympics boosting operational performance and the Queen’s diamond jubilee bolstering domestic tourist demand. We anticipate
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overseas investors will continue to focus on London’s four- and five-star market which saw trophy asset value growth by 6.8% last year – the highest of any subsector. If anything the weight of overseas
capital focused on London is driving pricing higher, particularly in the trophy end of the market, to levels above those seen in the previous peak of 2007. UK institutions continue to dominate
the sector in the regions and have accounted for 73% of their transactions, reflecting expansion by budget operators and an increasing number of assets available in this sub-sector which tends to operate under leases rather than management contracts.
ROBERT SEABROOK
Joint head of Hotels, Savills
Demand for prime assets has restricted investors to certain geographies
” MARKET VIEW
HOTELS London’s four and five-star hotel market grew by 6.8% last year
Growth will continue across the market in 2012
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