UK deals to grow in 2018

The UK is expected to see the volume of deals grow in 2018, despite an anticipated fall in performance.

The forecast came as HVS said that this year would “truly sift the good from the average, particularly in cities with an increasing supply of hotels, such as London”.

Julian Troup, head of hotels agency, Colliers International, said that the company was “looking forward to an improving level of hotel transactional activity in 2018”.

He added that the broker had seen “increasing demand for UK provincial hotels, particularly for global branded stock. We are seeing an emerging trend of increased demand for quality provincial hotel opportunities from a diverse buyer set, including international investors, who have been attracted by weaker sterling; and from private buyers, attracted to the benefits of a lifestyle opportunity, to corporate investors attracted to favourable returns and real estate alternatives.  Since the beginning of 2016, over 20% of UK hotel sales completed by Colliers were to international buyers.”

Troup told us that, despite performance fears “there is still considerable demand from both domestic and overseas buyers, as hotels continue to be an attractive and popular investment opportunity.”

Colliers International was echoed by fellow broker Fleurets which expects UK hotel transactions to top GBP5bn in 2017, some 30% ahead of last year, commenting that: “Whilst many challenges are standing on the doorstep, current conditions are encouraging strong purchaser demand and driving a broad spectrum of activity, for the time being at least”.

The opinion came as HVS warned that the new year was likely to be a challenging one for the UK’s hotel operators. Despite little or no occupancy growth, yields were likely to increase slightly with ADR and rooms revenue per available room revpar rising by an anticipated 5% in London and 3% in the regions.

Russell Kett, chairman, HVS London, warned that the combination of wages going up, staff shortages, increasing food and utility costs, and the impact of higher property taxes and business rates as well as a strong pipeline of new hotels would put pressure on UK hotels operating margins over the next 12 months.

Kett said that he believed that leisure travel for the year ahead would remain strong in the UK, particularly while the pound was relatively weak, although corporate business looked set to be squeezed as companies sought to contain costs. Likewise domestic consumer spending could remain somewhat dampened as confidence is still shaken by the UK’s impending exit from the EU. The threat of security concerns in key cities also remained in the background, but had yet to have a material effect on hotel demand.

While there was a deceleration in UK GDP growth, there would still be growth and the overall outlook for travel into the UK remained positive, said Kett. Hoteliers must focus on service, quality, outperforming their competition and encouraging direct bookings rather than becoming a slave to costly online travel agents.

He added that next year would truly sift the good from the average, particularly in cities with an increasing supply of hotels, such as London. Operators need to maximise revenue from every bit of space and keep a tight control on overheads, said Kett. The message to tourists must be that the UK was still very much open for business.

Fleurets was also cautious, commenting: “More so than for London hotels, provincial hotels are closely aligned to the state of the UK and local economies, such businesses having a greater reliance on domestic demand, particularly from the corporate segments, including meetings and conferences.

“As a result of the uncertainty around Brexit and the slowing UK economy, alongside concerns over inflation and rising interest rates, there is growing pressure on the consumer’s wallet, which in turn has, and will, subdue hotel spending. That said, the negative effects have, to date, seemingly been outweighed by the number of visitors making the most of the weak pound.”

One provincial hotel changing hands was the The Park Inn in Thurrock, due to rebrand as the Stifford Hall Hotel. Owner C1 Capital has leased the 97 room property to Bespoke Hotels, who will manage the rebrand, as well as operate the property.

Kett also predicted that 2018 would bring further consolidation across Europe’s hotel sector, as hotels become an increasingly attractive trading asset amongst institutional investors.

Recent takeovers by Marriott and Accor have intensified the appetites of global investors to see the macro financial benefits of such consolidations  potentially bringing together the likes of IHG or Hyatt with other hotel groups, he said. Both could be the target of others or they could be the acquirers, he concluded.

 

Hotel Analyst Perspective by Katherine Doggrell: As the brokers were making their happy faces about the year ahead (although one told us that they could only be relatively sure about the next six months, enough to keep them buoyant nonetheless) the numbers were starting to give a little pause. Concerns about costs have been bubbling for the last few months, with high street restaurant chains first to report the pain, squeaking like canaries down the mines.

The new concern comes via the latest figures from the British Hospitality Association’s Travel Monitor, which reported a decline in visitor numbers to the UK for the month of September. Visitor numbers fell by 1% year-on-year, in contrast to increases of 6% and 5% seen in July and August, and to the 9% growth seen in the first half of the 2017. Of those, September saw an 8% drop in visitors from the US – attributed to last year’s terror attacks – and an 18% fall in business travellers.

This was on top of last year’s forecast from PwC that the positive effects of the weak pound would start to wear off. Looking to 2018, JLL also commented that the UK economy may reduce business visits and dampen domestic spending, resulting in muted revpar growth. In London, the addition of 7,800 new hotel rooms poses pressure on hotel performance, but it was hoped that the increase in tourism activity will counterbalance this.

If not, hotels must look to the domestic consumer to raise spirits, but a dry January could turn into a parched 2018.

Posted on behalf of HotelAnalyst

 www.hotelanalyst.co.uk

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