Local councils in Britain spent record amounts on buying hotels in 2018, spending £93m an increase of 182% in 2017 (£33m).
This is according to the latest research from property adviser Knight Frank which said it “demonstrates the increasing appetite for local authorities to capitalise on low interest central government loans to purchase commercial property”.
Local authorities are able to benefit from low interest loans from the Public Works Loan Board, a statutory body that issues loans to local government. Since 2004, local authorities have been able to borrow without government consent, provided they can afford the borrowing costs.
Knight Frank added that a recent trend has seen “more and more” councils borrowing money for investing in hotels in order to fund major projects or stimulate regeneration in their own boroughs and town centres.
The property adviser’s research revealed over £600m of investment is already planned up until 2023, through private-public partnership schemes, where hotels form the primary focus in a development project and which have either outline or detailed planning permission granted.
Where hotels form part of a larger mixed-use scheme and are secondary to other larger publicly residential or commercial elements, the value of projects with detailed plans either granted or submitted rises to £1.8bn.
The Knight Frank research points to examples of active involvement by a council in private-public partnerships resulting in regeneration including the City of Liverpool which has brought to market a number of mixed-use development schemes including the spring 2018 opening of the 101-bedroom, Premier Inn in central Liverpool as part of a £39m mixed-use regeneration project to transform Liverpool’s Lime Street.
Shaun Roy, head of hotels at Knight Frank, said: “With the growing acceptance that councils need to seek new means of funding to cover budget shortfalls, we have seen many local authorities make the intelligent move of investing in hotels.
“By investing in hotels the council receives rental income generated by these assets, which offer a secure, long term income stream, with inflation linked cash flows, combined with an increase in the underlying property’s value over an extended period of time. These are a strong option for councils as unlike investment in offices and retail, no asset management is required, as they are managed by their operators.
“Significant opportunity exists for councils to invest in hotels and we expect this trend to continue until 2021 when this method of borrowing will end due to new government legislation.”
Examples of council-owned hotels over the past two years include:
- The Coombe Abbey Hotel in Coventry, 119 bedroom property situated in a rural setting, acquired in October 2017 by Coventry City Council for £11m (£92,000 per room);
- Charlecote Pheasant Hotel, Stratford-upon-Avon. 69 bedrooms situated in a rural setting overlooking a National Trust Park. The hotel was acquired by Ashfield District Council in November 2017 for £6m (£87,000 per room)
- Travelodge Keighley, 43-bedroom hotel, acquired by West Lindsey District Council in Yorkshire, December 2017 for £2.35m (£55,000 per room)
- Croydon Park Hotel, Croydon, Greater London. The 212 bedroom property was acquired by the London Borough of Croydon for £29.8m (£141,000 per room)
- Travelodge St Nicholas, Scarborough, 140-rooms, £14, (£100,000 per room). Acquired by Scarborough Borough Council in October 2018.