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Transactions in the UK hotel market are likely to be subdued until the terms of Britain’s exit from Europe become clearer and business confidence returns.
The latest Hotel Bulletin – published this week by HVS, AlixPartners and AM:PM – outlined that hotel transactions in the third quarter of 2016 totalled £522m in value, nearly half of that recorded in the same period last year.
Total transactions for the year to date were also significantly below that of last year.
There is still no strong indication of what form Brexit will take and this uncertainty has led to indecision and delays in property transactions, said HVS London chairman Russell Kett.
While the sterling depreciation recorded since June will have materially impacted overseas investors, many will be looking to take advantage of favourable exchange rates, making it a good time to buy in the UK.
However, economic uncertainties in the UK, such as a rise in inflation and the potential of rising costs, means that decisions are instead being delayed.
The report also said investors with existing UK portfolios will have recorded “significant” valuation declines when converted into their home currencies.
The quarterly bulletin notes, however, that Asian investors have maintained their interest in the UK market.
This year has seen Hong Kong’s YT Realty Group acquire a partial interest in a London Travelodge from Goldman Sachs for £42m, while China’s Junson Capital acquired the DoubleTree by Hilton London Docklands Riverside for a reported £80m.
The third quarter also saw the sale and leaseback of the hub by Premier Inn development at Kings Cross for an estimated £85m by Legal and General, along with the merger of Marriott International and Starwood Hotels & Resorts creating the worlds largest hotel company.
Interest in UK hotels, particularly in London, is still relatively strong, said Kett. “We expect transactions will rise in the latter part of 2017 as the terms of the UK’s exit from the European Union become clearer following the expected triggering of Article 50 in the spring,” he said.
“By this time much of the uncertainty should have dissipated and investors confidence in acquiring UK hotels should have improved.”
Meanwhile, the report said that the UK’s tourism and hospitality sectors have received a short-term boost from the depreciated pound and the rise in foreign exchange movements.
Staycations are also expected to rise going into 2017 as UK holiday-makers realise their pound will buy fewer dollars or euros.+
