UK hotel investment expected to reach record £8.5bn

Total transactions in the UK hotels market could reach a record £8.5bn before the end of 2015, according to estate agent Savills.

The forecast prediction is a 39% increase on 2014’s post-recession peak of £6.1bn and marginally exceeds the record total of £8.3bn in 2006.

The firm reports that £5.7bn worth of UK hotels have changed hands so far in 2015, with the total transactions in the first half of the year up 76.8% on the same period last year at £3.5bn. High profile portfolio sales such as the LRG2 portfolio of Holiday Inn hotels (£225m) have played a key role in this.

Savills expects a further £1.6bn worth of portfolio sales to be completed in the final quarter or early part of 2016, including the £1bn final tranche of the LRG portfolio of IHG-branded hotels.

However the company did say that this increase in activity is exerting downward pressure on yields. The great impact is seen in the franchised hotel sector where yields now range from 5.5% to 8.5% compared with 6.5% to 10% in 2014.

Rob Stapleton, hotels investment director at Savills, said: “The UK hotel investment market is on course for a record year as the appetite among overseas and domestic buyers in both London and the regions shows no sign of waning.

“With yields close to or at their pre-recession peak, further downward shifts will be constrained but we expect transactional activity to remain robust as the operational markets continue to show growth and portfolios acquired over the last four years are broken up.”

Savills also noted that regional transactions have dominated the UK hotels market so far this year, accounting for more than 78% of the total.

US private equity houses have been behind 65% of hotel acquisitions in the regions spending  around £2.1bn. Key deals including Lone Star’s acquisition of the Jury’s Inn portfolio for £676m.