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London hotel property prices have reached a new high of £500,000 per room, which is more expensive than an average London flat (£417,234), according to Colliers International.
The real estate services company analysed more than 2,500 two to five-star standard hotel rooms that transacted in London over the last two years at an aggregate price of £1.5bn – which showed the average transaction price taking place at around £500,000 per bedroom.
It found that the average price of a room in a two to three-star hotel was worth £263,000, a room in a four-star hotel was priced at £540,000, while five-star rooms cost £738,000. Record prices for prime hotels were also found to exceed £1m per room.
Colin Hall, head of London hotels agency at Colliers International, said the recent price increases have been achieved both through continued improvements in trade and further yield compression.
He said: “It is now virtually impossible to buy a freehold central London hotel operation for under £200,000 per bedroom, irrespective of condition, trade or location. Two years ago a similar hotel would have sold for £150,000 per room, which shows how quickly the market is moving.
“Currently, there is the least availability of stock at any time during the last 25 years. It also means that hotels, especially in central London, are challenging residential investment values. More particularly, we are seeing demand being driven by international appetite.
“Overseas buyers and some UK funds will now happily take a net initial yield of 4.5%, but even this is seldom available. Owners are just not incentivised to sell with interest rates continuing to run along the floor. They would rather leave their money where it is. London hotels are seen as a very safe long term bet both for running yields and capital appreciation.”
Colliers also carried out analysis of the central London branded budget hotel investment market over the same period. It found that more than 1,500 bedrooms changed hands at an average price per room of £177,000.
