Hotels

Despite prevailing economic uncertainty in a world post-Brexit, promising growth opportunities await for savvy hotel investors

Following the outcome of the 23 June 2016 UK referendum on EU membership, the country entered a period of political, economic and financial volatility. However, in many ways the impact of the referendum has made the UK increasingly attractive to investors, with the weaker pound already encouraging staycations and inbound tourism, which will in turn create further opportunities for the UK hotel industry. 

In addition, inward capital flows from investors, particularly those in Asia who continue to seek to acquire strategic assets and platforms in the UK, demonstrate confidence in the long-term prospects for the country. With a new Prime Minister and Cabinet now in office, the political outlook has stabilised, and the UK government continues to convey its message that the UK remains open for business. In our view, there continues to be a wealth of opportunities in the UK, and those investors who can keep their composure will be rewarded in the medium term.
 
Typically the properties which are most attractive to hotel investors are those which are either branded or offer rebranding opportunities. We have also witnessed a desire from an increasing number of investors to purchase hotels where there are asset management opportunities to reposition the hotel or improve cash flows.
 
There is strong variance in hotel performance across regional UK markets. Many regional markets are experiencing consecutive year-on-year RevPAR growth, though most still trade at a discount to pre-recessionary levels from the trading heights of 2006-2007. Additionally, while the global appeal of central London hotels remains strong, recent trading fundamentals may have softened, albeit on a relative basis.

Whether you are thinking about your next property investment, asset disposal or are in need of strategic or valuation advice, Christie & Co’s hotels team is well placed to assist you.

80 +

hotel professionals across the 16 UK and 16 European offices
 

500 +

hotels currently available for sale with a value of over €2bn

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Hotels for sale - trends in the regions

The hotel market recovery we saw in 2014 continued in 2015 with increased activity across both transactional and valuation services in most of our regional markets.

The North in particular enjoyed an upswing in the hospitality and leisure sectors. Demand for good quality hotels of more than 25 bedrooms is now outstripping supply. In the main buyers are looking to acquire hotels that have seen continued investment and that are generally well presented with higher occupancy and higher than average room rates. Coupled with the appetite of banks to support experienced operators and well-funded investors backed by strong management teams, many shrewd operators have decided to take advantage of strong demand to secure sales at premiums not seen since the peak of the market in 2007. The buyer profile in the North has also shifted with an increasing number of overseas buyers from China, Malaysia and India in addition to the experienced regional operators and high net worth individuals.

A shortage of supply is also at work in the Midlands and Anglia region which is also enjoying improving levels of confidence driven by better bank liquidity and a far more active market. There is greater demand for larger/corporate operations here, which offer more bank security. At the smaller end of the market, sub £500k properties and B&Bs remain challenging, particularly on the coast, as a higher proportion of the value is in the real estate. Buyers are looking for established operations with growth potential and in good condition particularly in urban/strong trading locations,  as well as hotels with facilities to enable the operator to drive alternate income as businesses return to spending money on conferencing. The buyer profile here has widened to include more experienced operators, particularly those with existing assets or those who have sold and have good cash deposits.

In the South we are seeing institutional, private equity and international buyers with appetite for the larger and better quality hotels in London, the South East and M25 fringes. There is strong demand for 100+ bed (preferably branded) hotels, while for the mid range hotels, demand is good, however, pricing is sensitive. The business has to have strong trade, or be priced competitively to attract buyers. Demand for lower end (seasonal) smaller hotels and guest houses is more sporadic. The lifestyle market is improving with cash purchasers able to complete transactions as debt funding these purchases is still challenging.

The South West is experiencing an improving climate, not just from a transactional perspective but also from the trading performance. Hoteliers here are also reporting an increase in the number of visitors to the UK. Our successes over the past three years have come from quality, profitable coastal hotels with 15+ letting bedrooms and those which can offer development opportunities such as constructing self catering/holiday cottages. 

The Scottish market is slowly improving as banks return to lending to private operators, albeit at reduced levels. Although a long way from the buoyant conditions of 2007, the market has improved over the past two years. There was a definite lull before and immediately after the Scottish referendum and there remains a little uncertainty from buyers in England who may have looked at lifestyle businesses north of the border previously.

If you’re looking to buy your first hotel, guest house or bed & breakfast, or are an owner, operator or investor looking to add to your portfolio, our expert team will bring decades of experience to the entire buying and selling process.

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