‘Unprecedented’ growth boosts UK hotel investment to £7.4b

Investment in the UK hotels industry hit £7.4b in 2018, a £1.7b increase year-on-year, a rise of 29% and 102% above the 12-year average.

That is according to the latest research by global property adviser Knight Frank. The “unprecedented” growth in 2018 was due to a 50% increase in international investment, with overseas buyers responsible for £4.9b invested into the UK hotel market. There was a 50-50 split of the capital invested between London and the UK regions.

UK investors were responsible for a third of the investment (£2.5b), European investors 27% (£2b) with £1.6b from France. Inbound capital from the US increased by 77% to £1.5b (21%), due to significant institutional interest.

London continues to remain an attractive target with total investment climbing to £3.3b. The acquisition of hotel sites and the forward funding of hotel projects equated to 21% of the total investment. The interest from international investment was the leading driver of the capital’s hotel market, accounting for £2.4b of total investment.

Outside of London, Edinburgh was ranked the most attractive regional UK city for hotel investment, accounting for transactions totalling around £525m with a 13% share of the UK regional investment market.

A new trend that emerged in 2018 was the increase in activity from local authorities, capitalising on low-interest central government loans to purchase commercial property. In 2018, local councils invested a record £93m in the hotel sector, an increase of 182% on 2017 (£33m).

Shaun Roy, head of hotels at Knight Frank, said: “With rising interest rates and prolonged Brexit negotiations, there is a strong demand for secure, long-term fixed income assets which has led to an increase in investment in hotels.

“The capital continues to remain an attractive destination for global and domestic investors, with opportunistic hotel investors stimulated by the attractive levels of growth prospects in London over the long-term.

“Furthermore, the proportion of capital allocated to specialist property is evident from the growing trend for the inclusion of hotel real estate in institutional funds. There is now a much greater understanding of the fundamentals of hotels as a specialist sector, which has led to over £1.1b invested in hotel development and forward funding for future hotel projects.

“We envisage further inbound investment, should sterling weaken further following the UK’s exit from the EU. Overseas capital flows and institutional investment is expected to remain buoyant as greater strategic importance is placed on investing in alternative specialist sector businesses

“Thus far, the pace of investment in 2019 has been strong, with London in the alluring position of being the world’s most liquid and transparent real estate market, cementing its reputation as a safe haven for international capital.”