How has the weaker pound affected investment in hotels?
Since Brexit, JLL has seen a notable increase in enquiries from overseas buyers looking to purchase hotel real estate across the UK, with interest focused on those markets which provide robust fundamentals.
As an established leisure destination and one of the most visited cities in the UK, Edinburgh continues to hold its position as the regional UK city that tops hotel investor and brand requirement lists.Kerr Young, Director, JLL
The scale of the deal size and investment returns depends on the individual investor, with many high net worth and specialist investors more focussed on the regional market – rather than London – in light of the more attractive investment yield.
How is Edinburgh performing?
Hotel investors have not been deterred by the continual background noise of a “neverendum”, which has curtailed investment in other real estate sectors across Scotland.
As an established leisure destination and one of the most visited cities in the UK, Edinburgh continues to hold its position as the regional UK city that tops hotel investor and brand requirement lists.
The city is set to build on this momentum as key investments continue to yield an increase in visitor numbers, including new routes to and from the airport; continued investment in the tram network and the increasing number of events hosted at the Edinburgh International Conference Centre following its extension. During 2016, hotels in Edinburgh outperformed the regional UK, with occupancy reaching 82%. Average rates rose by 5%, to £92, resulting in revenue per available room of £76, 30% above the regional UK average.
How does this compare to London?
According to the latest data from HotStats, hotels in London recorded a 2.6% decline in profit per room in 2016, while hotels in Edinburgh experienced a 12% increase in profit per room. London has long been a focus for hotel investment, but now the regional market is witnessing the benefit of interest from overseas investors following the weakening of the pound.
Despite initial uncertainly in the immediate aftermath of the recent EU referendum, there is positive story around the UK in terms of macro-economic stability and transparent transactional environment. This is demonstrated by recent deals such as the acquisition of the Premier Inn on Morrison Street by Israel based Leonardo Hotels and the purchase of the Glasshouse Hotel by Malaysia-based YTL Hotels.
What are your predictions for 2017 and beyond?
Despite geo-political issues, terrorism, and economic volatility, the tourism industry has shown resilience and travel remains on the increase. The movement of international travellers is projected to grow 4% annually over the next ten years, resulting in a lot of heads in beds.
Transactions in 2017 will generally be driven by funds reaching the end of their hold period and the subsequent restructuring of portfolios, rather than high income growth. Investors will continue to pursue yield, and move into more secondary and tertiary markets.
Transaction structures continue to evolve, and the role and clout of private equity funds is changing. Some markets where hotel performance has turned negative will see more stress in 2017, resulting in potential opportunities for buyers. This is likely to attract opportunistic investors to the Aberdeen market following three years of double digit declines in revenue per available room.
If you would like to find out more about how we can help you and your business establish, relocate or expand within the city region, or would simply like more information about what Edinburgh has to offer, get in touch today.