The London hotel market – challenges, activity and the opportunities
The outcome of the EU referendum continues to influence the London hotel market, both on a business performance and investor appetite basis. Still very much a hot topic within the sector is the devaluation of the pound and how this economic impact has encouraged greater levels of tourism within the capital. This increased tourism is predominately made up of overseas guests who continue to take advantage of the favourable exchange rate and is a trend we foresee continuing throughout H2 of 2017.
This weakened pound has also benefited UK hoteliers on the basis that it has encouraged greater levels of domestic 'staycations' within the UK. Consequently, greater domestic and foreign tourism within London has resulted in positive growth across many hotel KPI metrics, as reported in STR's July 2017 publication. Within their report STR confirmed there has been a year to date (July 2017) growth in London occupancy and RevPAR of 2.6% and 9% respectively.
London Challenges
The oversupply of hotel rooms in London continues to test owners and operators in the market. AM:PM recently published research forecasting that by 2020 London will have an additional 10% of existing bedroom stock introduced to the market. Consequently, both hotel owners and operators will be faced with challenges at to how to absorb new supply levels and ease the impact on performance as well as future occupancy, ADR and RevPAR growth.
Despite the recent tragic security events within the UK, we are seeing that London remains a resilient and attractive destination for both corporate and leisure guests. Although such events have undoubtedly raised awareness and diligence of visitors it has not deterred them from visiting London.
From a transactional perspective, a major challenge we face in the sub £20 million value arena is assessing the credibility of information and individuals working within this market. We are seeing an increasing presence of ‘independent agents’ getting involved with deals, who tend to operate with no legitimate agreement or contract in place with vendors and/ or purchasers. Consequently, these murky waters prove frustrating for both owners and appointed agents to navigate a transaction. To elude such circumstances we at Christie & Co carry out stringent due diligence and background checks on prospective purchasers and their retained agents to ensure we, and our clients, have complete transparency over a sale process.
London Activity
The London hotel market continues to entice strong levels of demand from both domestic and foreign investors, an appetite which is naturally amplified when dealing with assets in Central London locations. We have witnessed a number of high value hotel transactions within the capital in 2016 and the first half of 2017, particularly at the top end of the market. These high level value transactions include:
- Hilton London Metropole (including Hilton Birmingham Metropole)
- The Grosvenor House Hotel
- DoubleTree by Hilton London - Tower of London
- DoubleTree by Hilton London - Docklands
- DoubleTree by Hilton London - Westminster
London Opportunities
Despite the considerable levels of investment identified above, there undoubtedly remains a real frustration from investors looking to acquire in London due to the scarcity of quality, well invested and reasonably priced hotel assets. This is particularly the case within the mid level hotel market (£20 - £50 million).
