Savills predicts that regional transaction volumes in the UK hotel market will reach £2 billion by year end, a 17% increase on the total for 2013, as stock issues in London drive investors to seek opportunities further afield. The regional share of all UK hotel transactions so far this year has risen to 59% from 44% during the same period in 2013, according to the international real estate advisor.
Up 135% on 2013
Savills also highlights that, for the year to date, regional transaction volumes are up 135% on the same period in 2013, accounting for a figure of £1.1 billion. In particular, the firm has advised on a number of significant regional transactions so far in 2014 including: the sale of Radisson Blu, Durham, for £17 million; Novotel, Liverpool, for circa £13.2 million and Holiday Inn Express Edinburgh & Dunfermline for £11.9 million.
Imbalance with stock levels in London
Martin Rogers, director of hotel, leisure and trading at Savills, comments: “As a firm, we have already advised on £410 million worth of hotel transactions this year, which highlights the continued liquidity in the market. However, as investor demand improves and competition for prime assets increases, we are beginning to see an imbalance with stock levels in London and investors are therefore looking to the regions.
Eager buyers
“In addition, improving operational performance across the hotel industry combined with increased investor sentiment is fuelling appetite for hotel assets and whereas previously we have seen the market dominated by ‘distressed sellers’, we are now seeing the rise of the ’distressed buyer’ who is increasingly eager to spend their allocated funds.”
Savills notes that this growth in activity has resulted in further yield compression for UK hotels during the first half of 2014 and the firm is forecasting this trend to continue as supply constraints remain.
Impact of overseas visitors
Additionally, the firm reports that the dramatic increase in overseas visitors to the UK, which reached an all time high of 32.8 million in 2013, has been a driving force behind the improvement in regional hotel performance. With overseas visitor numbers 5.8% higher between January and May 2014 compared to the same period in 2013, the firm predicts that this could be another record year.
Marie Hickey, director of research at Savills, comments: “Hotel development is changing even within London as upscale supply spreads beyond the traditional West End core. Both the Southbank and areas around Old Street and Shoreditch are becoming increasingly attractive to luxury brands, particularly new entrants, with upscale room supply rising by as much as 79.9% and 225.6% respectively over the next four years.
“The number of Chinese visitors to the UK is also growing rapidly, in turn driving hotel brand and asset acquisition by Asia Pacific investors. This will be a key area for investment growth and could reach up to £500 million per annum by 2015.”
Savills confirms that UK hotel transaction volumes for the first half of 2014 totalled £2 billion with forecasts for the year end suggesting volumes will reach £3.1 billion.
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