The London hotel market has remained buoyant in the first half of the year according to Savills, as investment reached £1.1 billion; 55% of the UK’s overall total of £2 billion. International investment accounted for 68% (£756 million) of investment into London’s hotels. A strong tourist market, narrowing yields and a weaker pound have all boosted investment into the capital.
The firm notes that net initial yields for prime freehold hotel investments in London are currently between 3.85%-4.25%, compared to the end of 2016 which saw them at 5.13%. London capital values are currently 61.5% higher than at their 2007 peak according to data from MSCI. London assets are particularly popular with Asian investors with the most active investors for the first half of the year originating from Hong Kong, Malaysia and Singapore. Increased demand for a foothold in the city is also emerging from Indian based operators.
Gary Witham, director in the hotels team at Savills, comments: “London continues to remain popular with tourists and investors alike. We have seen significant interest in the first half of the year from overseas capital as the weak sterling creates a favourable market. With capital values now standing so high and with growth relatively subdued we expect to see owners that purchased before 2015 starting to look to sell.”
Savills highlights key deals in the first half of the year as the purchase of the Threadneedles hotel in the City of London by Malaysian firm YTL Hotels, the acquisition of the Levin hotel and the Capital hotel by US based Warwick Hotels and the sale of South Place Hotel by Frogmore.
Amy Farrugia, senior analyst in the hotels team at Savills, comments: “There has been an increasing diversification in the origin of the capital being deployed into London as it continues to be seen as an investment safe haven. We expect Asian capital to continue its high level of activity to the end of the year although there is a severe shortage of quality assets priced between £20 to £100 million in the capital.”
Looking ahead, the firm predicts that investment into the London hotel market will reach £2.8 billion by the end of 2017 and the UK hotel market will transact circa £5.1 billion for the full year, up 28% on the 2016 total of £4 billion.