Research - JUNE 20, 2017

Overseas investors to drive U.K. hotel market in 2017

by Released

In 2016 approximately £3.4 billion ($4.3 billion) was invested in the U.K. hotel sector, exceeding the 10-year average by £1 billion ($1.3 billion), according to Knight Frank. This comes as investors are increasingly seeking long-term defensive asset classes that provide strong economic fundamentals and income security.

Knight Frank predicts that the U.K. hotel sector in 2017 will continue to see significant overseas capital due to the weakened value of sterling, with opportunistic investors seeking investment in both London and key regional cities across the United Kingdom. In addition to this, the market should also benefit from increased overseas tourism of 4 percent according to Visit Britain, and more staycation holidays due to the unfavorable foreign exchange rates following the economic impact of the EU Referendum vote.

“We expect that the strong economic fundamentals in 2017 will further underpin investor confidence in the U.K. hotel property market,” said Julian Evans, head of healthcare and hotels, Knight Frank. “The bond markets are driving yield compression for hotel fixed income, including ground rents where Knight Frank has sold record deals at approximately 2.3 percent net initial yield. A ground swell of cross-border capital is searching for quality going concerns and fixed income.”

Evans added, “Therefore we anticipate that we will continue to see strong results as investors look for better returns on their investments and reassess their portfolio to incorporate more specialist property assets. Momentum will continue across the industry as it responds to threats from technological disruption taking place in the sector, through further consolidation or long-term partnerships.”

Specialist property, which Knight Frank defines as hotels, healthcare, student property, automotive and PRS, is being recognized by investors as a source of long-term assured income. Approximately £70.4 billion ($88.8 billion) has been transacted in specialist property assets since 2007 and its popularity is set to continue, with investment volumes forecast to reach £15 billion ($19 billion) this year, according to Knight Frank’s report Rest Assured Specialist Property.

Income returns within the specialist sector reached 5.7 percent in 2016, exceeding the traditional commercial sectors, while four of the five specialist sectors saw investment volumes equal or exceed their five- and 10-year averages.

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