Despite all the trials and tribulations faced by the markets in recent months – Brexit, political leadership elections in the UK and the fall in the value of the pound, there remains a strong appetite for hotel assets within the Capital.
Demand still far outweighs supply, and this is one of the key reasons as to why hotel transaction prices remain at peak levels. Good quality assets are scarce and when they do come to the market, we usual see multiple bids and high levels of competition for hotel assets.
Although we are seeing an increase in the number of non-domestic buyers looking to take advantage of the weakened pound, and we are also seeing that a large number of these overseas buyers are looking, predominantly at high-value, 5-star, central London freehold opportunities – and we know how rarely these come to the market.
However, aside from these high end luxury assets, overseas investors continue to be motivated by attractive investment yields as much as anything else, which at times are found in mid-market London hotels.
A high proportion of London buyers secure their purchases in cash and go on to refinance post-completion. We are seeing deals completing incredibly quickly, especially when you have two motivated parties transacting.
A large number of single assets, are being bought for their development potential, where buyers/investors see a greater ability to maximise value through conversion rather than continued trade as a hotel. Primarily these conversion projects are focusing on creating residential property, which of course London has a dramatic shortage of, coupled with substantial capital value.
To date, Brexit has had a minimal effect on the market. If anything, it stoked the fires and encouraged more foreign investors to enter the market, while the exchange rate works to their advantage, particularly those who are looking to expand their existing portfolios, or who want to diversify a portfolio and move into the London hotel market. Either way, London as a market post-Brexit has been viewed as far more attractive and reasonable investment.
Without doubt, London continues to be perceived globally as a secure investment location and certainly a safe haven for overseas buyers. After monitoring market activity prior to and post-Brexit, we are confident this will not change anytime soon.