Research - APRIL 12, 2017

U.K. is top target for hotel investment in 2017

by Andrea Waitrovich

The United Kingdom is the top European target for hotel investment in 2017, according to CBRE’s European Hotels Investor Intentions survey.

The respondents view the United Kingdom as the most attractive market in Europe for hotel investment, reflecting a growing confidence in the U.K. real estate market following a post-referendum slowdown in investment activity in 2016.

Germany is rated by investors as the second most attractive investment market for hotels, followed by Spain, France, Italy and the Netherlands.

Survey respondents cited “economic growth” as the greatest opportunity to European hotel investment in 2017. The primary concern for hotel investors in 2017 is “asset pricing and geopolitical influences.”

In addition, approximately 87 percent of respondents are planning to invest the same or more into hotel real estate in 2017, showing the hotel investment market is more attractive compared with a year ago.

The results of the CBRE survey were based on answers from 485 respondents, all of which are real estate investors with a particular interest in hotels.

Europe saw the most protracted slowdown in investment volumes in 2016, according to JLL. Germany overtook the United Kingdom as the second most liquid global market, securing $5.5 billion of hotel deals. The United Kingdom itself reported a 73 percent decline in hotel transaction volumes, closing the year with $4.4 billion of hotel deals.

While London remains in the top spot of desired investment destinations, the lack of available product for sale and the gap between buyer and seller expectations has drawn investors to key regional U.K. markets. This is evident through the increase in transaction activity in Birmingham and Manchester. In addition, hotel transactions in Ireland rose 73 percent year-on-year to $776 million in 2016.

PricewaterhouseCoopers estimates approximately 8,000 rooms could open in London this year. If all open (and often this is not the case as opening dates slip) this will mean a 5.8 percent increase over 2016. This is practically double the figure added in 2016, according to AM:PM. This will make it a challenge to fill all the new rooms but with a high proportion of the new rooms being branded budget, with a largely domestic customer base, existing non-budget operators should still be able to benefit from stronger demand driven by the weak pound. For 2018 there are already around 5,000 rooms set to open, meaning potential net growth of 3.7 percent.

The U.K. outlook for 2017 notes that parts of the U.K. economy should remain relatively strong, particularly the consumer services, technology and, importantly for the forecast, tourism sectors. Recent business trends surveys, including the ICAEW, report confidence on an upward trend.

PricewaterhouseCoopers anticipates a key factor in 2017 will be a re-emergence of inflation, which could squeeze real earnings growth and potentially rein in some leisure spend.

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