The report, UK Alternatives Investment Index: H1 2019, provides an overview of currently achievable yields on prime and secondary investments across various subsectors. The report finds that the average yield on prime investments across UK alternatives as a whole ranged from 3.5% to 7.5%, with hotels demonstrating yields of 3% to 4% for prime and 5% to 6% for secondary investments in the budget, fixed-income space.
Christie & Co’s report points out that whilst fixed-income investments have predominantly been in the budget segment where steady trading fundamentals and strong covenants have made these attractive, compression in yields has led to some investors seeking alternative models. This includes both investments in the operating business, where the rise of third-party managers means investors don’t necessarily have to run the business themselves, as well as investments in new and emerging accommodation sectors.
With hostels, serviced apartments and other lean operating model assets improving in overall quality and becoming more established as an asset class, attracting both institutional and private investors, yields are expected to sharpen.
Olivia Chaplin, Director – Hotel Consultancy at Christie & Co comments, “We continue to see plenty of interest in the hotel space, especially for development deals or for structures including management contracts where the returns to an investor can be more attractive once the risks have been identified and understood, an area in which we are well placed to advise.”