The UK hotel market defied expectations and saw investment volumes reach £6 billion in 2019, attracting a significant 26 per cent uplift in investment by institutional investors, according to the latest UK Hotel Capital Markets: Investment Review 2020 report by leading global property adviser Knight Frank, who have offices in Leeds, Sheffield and Harrogate.
Following an exceptional level of portfolio activity in 2018, last year saw hotel transaction volumes slow by £1.2 billion. This represents a three per cent decline compared to the five-year average owing to lower investment activity linked to Brexit-related uncertainty and a turbulent political landscape, but remains five per cent above volumes in 2017.
The region of Yorkshire & Humber was ranked as the fourth most liquid region in the UK with over £230m of investment accumulated from a total of 19 assets exchanging hands. In particular, some significant branded hotel stock changed hands as a result of various regional portfolio acquisitions.
These assets included the Hallmark Hull, Hilton Leeds City, Hilton York, The Crowne Plaza Harrogate and the DoubleTree by Hilton Leeds. As a region, the market achieved an average price per room of £116,000, an uplift of 13 per cent compared to the previous year.
The most liquid region was the North West.
Leeds itself came sixth in the city hotels investment charts in the UK, with Manchester in first place. £100m was invested in the sector in Leeds last year.
Total institutional investment (both UK and overseas) into the UK hotel market totalled £2.5 billion in 2019, increasing by over a quarter and accounting for 41 per cent of total UK hotel investment. This came as UK institutional investors more than doubled their investment into the sector totalling over £2 billion.
Whilst investment into mainstream asset classes experienced steep declines in 2019, the weight of capital invested into alternative property during 2019 increased by 4.8 per cent year-on-year, as investors are attracted by long-dated income to diversify their portfolios, combined with the awareness of the growing demand for experiential travel and location-based experiences, which are further driving investment in the sector.
Knight Frank remains cautiously optimistic for 2020, anticipating an increase in higher value stock coming on the market, resulting in increased activity from overseas investors, particularly from Thailand, Japan and the Middle East. As such, Knight Frank considers that UK hotel investment volumes have the potential to rise beyond the three-year average of £6.3 billion.
Shaun Roy, head of Hotels and Specialist Property Investment at Knight Frank, said: “We have continued to see a strong demand for secure, long-term fixed income assets which has meant that despite uncertainty within the general investment market, investment into the hotel sector has remained strong, particularly driven by institutional investors.
“Both London and the regions continue to offer attractive propositions and returns for global and domestic investors, who recognise the growth prospects available, whilst significant opportunity exists for investors to take advantage of long-lease ground rents deals which continue to evolve and further strengthen the investment market.
“We predict that 2020 will see more portfolios and higher value assets coming to market to capitalise on the growing appetite from UK and overseas institutions.”
London remains attractive to hotel investors, with hotel investment targeting the city reaching £2.7 billion in 2019, whilst its market share of total UK hotel investment increased to 43 per cent. Though this represented a decline of 11 per cent year-on-year, this level of investment is equal to the capital’s five-year average investment volume and is ten per cent higher than 2017 volumes.
The total volume of hotel transactions in the UK regions totalled £3.2 billion, a decline of 20 per cent compared to 2018 but equalling the level of investment recorded in 2017. Manchester attracted £500m of investment, the highest investment volume within the UK regions, recording 18 per cent market share making the North West the UK’s most active region for hotel investment.