A year which saw the average sale price for UK hotels increase by 5.7 per cent, also witnessed the transactional marketplace reassert itself – according to Business Outlook 2014, the annual state of the markets report by specialist property adviser Christie + Co.
The year began with a big bang of portfolio transactional activity (Principal Hayley, Malmaison/Hotel du Vin, Marriott Hotels) and while the potential ‘year of the major deal’ never fully materialised, the positive start at least indicated that where intelligent investors entered the sector, stimulus and growth followed. By year-end, further portfolio activity in the shape of the acquisition of Menzies Hotels by Topland Group, looked likely to set the tone for 2014.
Equity looking for opportunity
Jeremy Hill, Director and Head of Hotels for Christie + Co, says: “As we move into 2014, there remains a substantial amount of equity looking for opportunity. The sums now add up for going concern transactions. New hotel development is still largely predicated on lease structures with still further yield compression for prime located investments achieving 4.5 per cent net initial yield (NIY). Finance is cautiously returning for development with hotel management agreements (HMAs).”
London at forefront; regions improved performance
London’s ‘safe-haven’ status was reaffirmed as it remained at the forefront of major deals and highest prices, but even in the UK regions — especially where quality assets came to market — values were maintained. Indeed the regions saw improved trading performance for the first time in many years, attracting buyers into the provincial markets, enticed by prospects of capital appreciation.
Banks set to boost hotel market
The strategies of the banks seem set to boost the hotel market still further in 2014, as Jeremy Hill explains: “As non-performing loan portfolios are disposed of, we are likely to see a number of reasonable quality assets reach the market through the course of the year. With the loan portfolio disposals, this should allow the banks to release funding for hotel investment – albeit more cautiously and selectively than in the days before the recession.”
The emergence of new brands on the back of product development — such as Premier Inn’s introduction of Hub, Z Hotels, Sleeperz and Citizen M in 2013 — will become increasingly vital in 2014 if operators are to see off the growing threat of the online travel agents’ (OTAs) grip on pricing and, by dint, margins.
Reasons for renewed optimism
Outside of this, Jeremy Hill insists there are reasons for renewed optimism within the hotels sector: “Much will depend, of course, on the levels to which the banks will be inclined to take part, but the transactional environment will see some further upturn as more consolidation looms and further brand roll-out through franchise modelling takes place.
“This, in tandem with the still increasing demand from those with cash to invest, should see the potential for selective hotel value increases, both in and outside of London, even if trading remains relatively stable in these times of economic transition.”
See all the H&C News sector articles looking in more detail at Business Outlook 2014:
Branded restaurants to bring hope to the regions in 2014 Average hospitality property prices recover and transactions set for boost
Average sale prices increase for pubs
Transactional marketplace for hotels reasserts itself