Institutional investors and non-core hotel assets set to drive UK hotel market in 2018

05 March 2018

Investment into UK hotels in 2018 is set to be driven by institutional activity and the maximisation of returns, according to research from international real estate advisor Savills.

Total UK hotel transaction volumes reached £5.4 billion in 2017, exceeding the 2016 total by 32% notes the firm. Institutional investors were particularly active, driven by the hunt for income in the face of Brexit headwinds, and accounted for £602.6 million of transactions; 39% higher than the levels recorded in 2016 with deal count also up 40%. In 2018 Savills predicts there will be continued activity by institutional investors, particularly for fixed income assets and those with strong covenants, however this will put pressure on supply levels.

The lack of supply of fixed income assets will lead institutional investors to look into opportunities outside the core hotel market in 2018 according to Savills. Leased serviced apartment assets, historically dominated by owner occupiers and private equity, are becoming more attractive due to their ability to be run with an operating partner and long term income offering.

Branded hostels will also benefit from increased investment activity according to Savills. Whilst a  relatively undersupplied market in the UK, the growth in the youth traveller market and the ability to maximise the yield from a single room is particularly attractive to investors. The sector benefits from lower operating costs than traditional hotels, therefore offering higher margins to investors.

Martin Rogers, head of UK hotel transactions at Savills, comments: “The UK hotel market had a strong 2017 and looking ahead to the rest of this year we expect the positive sentiment to continue. The depth of the sector ensures that a range of investors remain active in the market as both occupational demand and returns remain at a robust level. The fundamental supporting operational demand over the longer term and particularly in the face of Brexit, leads us to believe investor appetite for UK hotels is set to remain firm in 2018."

 
 

Key Contacts

Martin Rogers

Martin Rogers

Head of UK & European Hotel Transactions
Hotels

Head Office London

+44 (0) 20 7409 8039

 

Marie Hickey

Marie Hickey

Director
Commercial Research

Head Office London

+44 (0) 20 3320 8288