In 2019 we have seen a notable decline in both transactional volume and deal count in the UK despite a number of significant transactions at record prices.

However domestic and overseas investor appetite remains strong and the hotel market remains an attractive investment option.

The sector responds well to changing investor requirements by adapting operating structures and evolving and innovating brands with technology. However, we have also seen large amounts of development and an ongoing increase in the supply of hotel rooms in recent years. This, alongside the political and economic uncertainty influenced by Brexit, is contributing to a record drop in RevPAR in some markets. Markets with the right fundamentals will continue to see growth in 2020.

The hotel construction pipeline in the UK is currently the second largest in Europe, in terms of projects, after Germany. Approx. 225 hotels are currently underway across the UK, with London continuing to be the country’s development hot spot, notably in East London and the Southbank. Regional UK cities, such as Manchester, Glasgow and Bristol are expected to see double-digit growth in the current room supply by the end of 2022, with strong construction pipeline underway.

2019 challenges

• Brexit uncertainty
• Continued increase in supply in some markets
• Continued pressure on costs and the bottom line
• The capital expenditure time bomb;
• Availability of deals is scarce compared to the amount of capital chasing deals
• Mixed trading performance in the regions impacted by supply with many markets starting to record a drop in RevPAR

Market predictions

• Brexit deal will unlock the market
• Continued impact of supply on trading performance
• Possible rise in disposal of distress assets

Outlook

• Brexit uncertainty will remain into 2020 as impacts on business travel, workforce and staffing issues continue from 2018/19. The general election will impact on business, legislation, taxation, customer confidence, currency etc. There is plenty of hotel development and we may see an impact on trade. There may also be a subsequent issue due to staffing concerns. We may also see performance issues due to underinvested assets, predominantly outside city centres.
• In 2019 we saw an uptake in interest for Country Houses and we expect this to continue into 2020 as interest comes from a range of buyers, from regional to international across the board.
• The sector is of interest to many and is well accepted and understood by institutional investors who are happy to take on some risk.

Case Studies

• Days Inn Waterloo
• De Vere Horwood Estate
• Project California; Cotswold Inns

Positives in the sector

Strong appetite in the South and major cities such as Manchester. This can be related back to the challenge of high demand and lack of availability. Also – this is a HUGE number of people per district – some markets inviting over 5,000 people searching for opportunity.

Carine Bonnejean

Managing Director – Hotels

T: 020 7227 0714

E: Carine.Bonnejean@christie.com