Jones Lang LaSalle has published its 2013 Property Predictions, based on a transitional year for the UK economy as recovery is slowly re-established, but anticipating movement in the hotel property sector.
Economic context
Commenting on the firm’s annual research, Guy Grainger, UK Chief Executive at Jones Lang LaSalle, said:
“There have been some brighter signs of late. The UK economy appears to be creating jobs at a much healthier rate than the GDP figures suggest and even output rebounded in 2012 Q3. This was the Olympic quarter and boosted by several one-offs, but perhaps a corner has been turned.
“The global situation still has signs of uncertainty, although an uneasy balance is being maintained in the Eurozone. Inflation rates have also fallen substantially over the last 12 months and there is an improved outlook for consumer spending.
“However, the broad consensus is that the UK economy is going nowhere fast and that growth in 2013 will be subdued. GDP is forecast to rise to by about 1% in 2013, better than 2012, but not great by historic standards.”
Andrew Burrell, Head of UK Forecasting at Jones Lang LaSalle, added:
“A couple of forces for recovery stand out. Firstly, a gradual improvement in consumer demand is forecast as real incomes benefit from higher employment and lower inflation, with price increases falling toward the government’s target for the first time since 2009.
“Second, strong corporate balance sheets are expected to boost business investment as sentiment slowly rebuilds. Nonetheless with confidence still fragile, any upturn in demand is likely to be faltering, at least until later in 2013.”
London to drive UK economy
In recent years, the pain has not been evenly shared across the UK. London has been most resilient and is where much of the recent jobs impetus has been concentrated. The capital is expected to drive the UK economy in the recovery led by its world-leading business services sector. The rest of the country bore the brunt of the recent downturn, but there too growth re-starts in 2013, albeit at a fairly modest pace.
Hotels in the UK
- London will remain sought after despite supply growth and any post-Olympic hangover
– Despite an 8% growth in supply over the last 2 years, London trading performance is expected to remain robust, with London continuing at the top of investors’ shopping lists. London has a global reputation, is a core location for hotel brands, and new luxury hotels are reinforcing this.
- 2013 the ‘year of reckoning’ for regional hotel groups: no more ‘extend and pretend’
– Growing recognition by hotel owners, operators and their lenders that trading remains tough and that market performance is not going to improve in the short and medium term. As a result, market recovery is not going to allow refinancing, or banks to recover loans close to par. And hotels starved of investment will struggle to compete.
– The result: banks are more realistic on values and will (finally) make decisions about the unwinding of their loans and disposal of assets – often at very substantial discounts to the original acquisition cost (as much as 50%).
- Regional hotel values to be impacted
– Flat revenues, cost pressures and declining profitability in the regions will impact values – and provide savvy investors with acquisition opportunities.
- Under-demolished not over developed!
– Out-dated and under-invested hotels in many locations need to be demolished or refurbished, so that they cease to be a drag on the market.
– Leading hotel brands have ambitious growth plans, and will seek both existing independents and new build projects.
- Positioning for recovery
– If hotels are to position for the stronger growth that may emerge later in 2013, then they have to invest in their product: renovation of facilities is essential as is investment in the new technology systems that will enable them manage their routes to market effectively, reduce external commission, build and retain profit.
To download a copy of the full Jones Lang LaSalle Property Predictions 2013 report please click here