Real estate

UK hotel investment to surpass 2006 peak at £8.5bn by year end

Reception Bell - UK hotel markets could reach £8.5bn - SantanderCB

Property firm Savills has forecast that total transaction volumes in the UK hotels market could reach £8.5bn by year end, a 39% increase on the £6.1bn figure recorded in 2014, and above the record total of £8.3bn in 2006. So far this year, £5.7bn worth of UK hotels have changed hands, with the first half total 76.8% higher than the same period last year at £3.5bn, largely due to high-profile portfolio sales such as the LRG2 portfolio of Holiday Inn hotels. The £1bn final tranche of the LRG portfolio of IHG branded hotels is expected to make up the bulk of the £1.6bn worth of portfolio sales Savills says will be completed in the final quarter or early part of 2016. This increase in activity is exerting downward pressure on yields. The greatest compression has been felt in the franchised hotel sector where yields now range from 5.5%-8.5% compared to 6.5%-10% in 2014. Regional transactions have dominated the UK hotels market so far this year, accounting for more than 78% of the total, with US private equity firms behind 65% of these sales. This is down on the 90% share they accounted for last year. Savills reports that hotel investment is increasingly being seen as mainstream with acquisitions by UK institutions reaching an all-time high of £1.2bn last year. With 80% of UK hotels owner occupied or third party managed, institutional investors keen to tap into the sector are increasingly attracted to new brands and concepts such as serviced apartments.


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