Availability of finance for UK hotel sector holds key to 2012 success

In its annual round-up of trading for hotels, HVS outlines the sector’s mixed fortunes through 2011: A modest rise in trading; offset by a continued dearth of available finance for transactions.

HVS London director Tim Smith said investment was ‘vital’ for hotel operators and may come from traditional sources such as banks or new sources such as institutional investors.

Hotel debt financing​

“Lack of available debt financing will be an on-going constraint for many hotel transactions both in the UK and across the European market,” Smith said. “New full-service hotel openings in 2012 will be mainly limited to key gateway cities such as London and Paris.

“Banks with loans that need refinancing will either continue to ‘extend and pretend’ or lose patience and force a sale, possibly via insolvency.”

During 2011, trading in London’s hotels and in many of the UK’s regions improved on 2010 levels, with RevPAR up 5.3 per cent across the UK. Unfortunately, the costs of operation rose at a similar rate, negating any rise in net operating income for many hotels.

Top hotel transactions of 2011​

In terms of hotel transactions, 2011 saw a similar number to 2010. Notable deals included the sale of the W Hotel in London’s Leicester Square and the sale of the Mint portfolio of eight hotels to Blackstone for £600m.

The year was also notable for the collapse into administration of Von Essen Hotels, although most of the 28 hotels have now been sold, or are in exclusivity.

“No-one is safe from the recession, however big they are,” added Smith. “Von Essen was a major victim this year, but I doubt it will be the last. The good news is that most of the hotels have found new owners – proof that it is more often the corporate entity rather than the hotel that fails.

“Now is a good time for hotel buyers to acquire assets, so there could be an uplift in transactions in 2012.”