Investment into the London hotel market accounted for just over 50% of all hotel transactions in 2016, according to international real estate advisor Savills. Volumes transacted in London reached £2 billion, up on the 45.2% share of the market in 2015. Investment into the UK hotel market as a whole totalled £3.9 billion in 2016 as robust demand continues to drive activity in the sector.
The firm notes that resilient levels of demand resulted in the deal count exceeding 220 in 2016, above the 195 reported in 2015 and even ahead of previous peaks in 2006. Overall investment volumes were down from £8.1 billion in 2015, however both 2014 and 2015 were exceptional years due to portfolio activity, with the 2016 year end transaction volumes of £3.9 billion only 3.6% below the long term average.
Marie Hickey, commercial research director at Savills, comments: “We were always expecting 2016 volumes to be down due to lower portfolio activity. What is key is that deal count actually increased in 2016 proving investor demand and activity has remained strong across both the London and regional markets, in spite of the result of the EU referendum.”
Savills highlights that London’s increasing share of the market was helped by a number of large lot size deals including the £350 million acquisition of the former War Office by the Hinduja Group and Obrascon Huarte Lain for hotel redevelopment and the £300 million purchase of the Hilton Double Tree Tower of London by Gulshan Bhatia.
Post the referendum vote London’s appeal to overseas investors has been aided by the favourable currency exchange with deal activity by international buyers doubling in the second half of the year with eight deals recorded post June as opposed to four in the first six months. In terms of market share, overseas investors were the most active in the sector accounting for 29.2% of 2016 transactions with volumes at £1.1 billion, according to Savills.
The year saw an increased level of activity from private individuals and property companies with transaction volumes by these groups increasing by 152% and 65% respectively.
Martin Rogers, head of UK hotel transactions at Savills, adds: “Hotels continue to be a favourable option for investors looking to the UK. Even in a post Brexit environment the UK, and in particular London, will continue to be attractive to visitors meaning that hotels will be in demand, and this offer of long term income will therefore make them attractive assets for investors.
“For private investors and high net worth individuals the smaller lot sizes found in the sector are an added draw. 2017 will see continued demand for both London and regional hotels and we expect demand from Far Eastern investors to increase. In addition, we expect that further single assets will come to the market as a result of the break up of the portfolios purchased over the last few years.”