_Portfolio activity dominates UK hotel investment in 2018

Hotel transactional activity has increased by a staggering 84% in 2018, compared to the same period last year, driven by an exceptional level of portfolio activity, representing 66% of total deal volume, which equalled some £3.1 billion of investment. 

Project Tower - Carillion Portfolio, Knight Frank advised on the sale of 4 Ibis Styles Hotels, Haydock, Crewe, Barnsley & NEC Birmingham (497 rooms) to Starboard Hotels, sold off a guide price of £30.0 million

In London, 49% of activity has resulted from hotels exchanging hands as part of a portfolio transaction, equating to over £880 million of investment, whilst in regional UK, portfolio investment to date has totalled £2.25 billion and represents 77% of total regional hotel investment.

Major portfolios transactions completing in 2018 include the disposal by Starwood Capital of the 13-strong Principal Hotel Group, including two De Vere hotel assets, for £858 million to Foncière des Régions; Lone Star’s exit from the UK hotel sector, with the disposal of its remaining Amaris hospitality portfolio and operating platform to LRC Europe for £600 million; Apollo Global Management’s disposal of its 20-strong Holiday Inn and Crowne Plaza portfolio, netting some £742 million and Brookfield’s successful £430 million acquisition of the SACO Group, representing the largest serviced apartment deal in the UK to date.

The diverse range of portfolio sales completing, is evidence of the demand sought for quality hotel stock.

Whilst new investment structures and partnerships have been put in place to secure these transactions, investment decisions are increasingly determined by income security, valued recognisable global brands, strong covenants, potential upside and proven management. All of these factors combined, help to provide a stable platform from which to drive profitable growth.

Knight Frank advised on the sale of The Abbey Hotel, Bath, sold off a guide price of £17 million, UK buyer

Despite a strong level of portfolio activity, investment volumes for single asset transactions in the UK have declined by approximately 19% compared to the equivalent period YTD the previous year.

Whilst London has witnessed a similar number of hotels and number of bedrooms exchanging hands, the average price per room in London has fallen by 20%, equating to around £240,000 per key.

In contrast to London, whilst the investment volume for single asset transactions in regional UK has also declined in 2018, the average price per room sold has witnessed a significant rise of 27% to approximately £118,000 per room sold, with a larger proportion of corporate hotels transacting in the mid and upscale markets contributing to the rise.  

Whilst London remains a key gateway city in Europe that will continue to benefit from the growth in international travel, the recent decline in volume of single asset transactions is evidence of the continued and prolonged uncertainty relating to the outcome of the Brexit negotiations.

Whilst investors are becoming increasingly vigilant in their due diligence, a further trend to have emerged to date in 2018, particularly in London, is the growing number of single asset transactions taking place which have involved experienced, long-term investors who understand the cyclical nature of the hotel market and have the commitment, confidence and knowhow to invest.

Equally, investors have preferred to hedge their investment on the steady income typically generated by regional hotels and through generating efficiencies of scale through investment in portfolio agglomeration. As such, it comes as no surprise that year-to-date in 2018, regional UK transaction activity represented 62% of the total UK investment equating to £2.9 billion.

Meanwhile, appetite for secure, long-dated, fixed income hotels remains strong, with over £610 million of investment taking place as at August YTD 2018, including the acquisition by Secure Income REIT of two Travelodge portfolios, comprising 76 hotels, for a total consideration of £242 million.

In addition, our research into fixed lease hotel transactions reveals an additional £360 million of investment has taken place to date in 2018, involving a hotel development opportunity.   

With a number of fixed lease investment deals under offer and further portfolio activity expected to complete in H2 of 2018, we envisage hotel transaction volumes to rise by over 20% in 2018, with our full year forecast to exceed £6.5 billion. 

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