Hotels – the next hot investment trend?

European hotel real estate investment volumes reached €23 billion in the year to the end of Q1 2019, with considerable growth in the UK, Spain and Germany. The UK saw a 15.1% YoY increase, Spain 17.5% and Germany up 7.1%.

Despite Brexit, London remains the leading European hotel transaction market with a total volume of around £1.8 billion in 2018. As we’ve moved into 2019, momentum has continued with some sizeable deals already completed including the acquisition of the Grange St Paul’s, Grange Tower Bridge, Grange City and Grange Holborn for circa £1 billion by Queensgate Investments. Another notable transaction is Dalata’s acquisition of the entire issued share capital of Hintergard Limited from Aldgate Hotel Holdco LLC for £91 million!

Why is this?

• Retail destinations

The structural shifts in retail, the rise of mixed-use destinations, and the developments within the hospitality sector are having a positive impact on the hotel industry. The increasing importance of ‘creating a sense of place’ and the challenging retail market resulting in vacant units, have presented an opportunity for shopping centres to differentiate with restaurants, entertainment & leisure tenants and more frequently, hotels. Hotels increase footfall for the scheme, are highly convenient for guests and bring something new to the tenant mix.

• Tourism

As UK tourism has risen, we have seen a massive increase in retail and leisure destination owners and operators creating tourism specific roles. For example, some outlet centres are strategically targeting overseas markets like China, supporting transportation to boost footfall to the scheme and consequently, sales.

• Events

There has been a significant boom in the UK events and exhibitions markets, with a steep increase in activity from overseas event businesses. We’ve seen many of our venue clients increase their business development teams to create specialists who specifically target overseas opportunities – driving business to hotels.

• Sterling

The decline in the value of the British Pound has been a goldmine for international investors, a massive factor behind the increased interest in the UK real estate market as a whole!

All these contributing factors, along with others, have created the perfect storm for the UK hotel market.

The UK may be experiencing political uncertainty, but the hotel market is proving resilient. Tourism levels have maintained momentum, consumers shift towards experiential activities is driving demand and the increased interest from overseas investors – which accounted for £2.4 billion of the capital’s hotel real estate investment in 2018 – has led to significant growth for the UK hotel real estate market!