Investors back on UK hotel market

By Melodie Michel contact

- Last updated on GMT

Investment activity in the UK hotel market was up 65 per cent in H1 2014
Investment activity in the UK hotel market was up 65 per cent in H1 2014

Related tags: Hotel

Mergers and acquisitions (M&A) in the UK hotel sector were up 65 per cent in the first half of 2014 compared to the previous six months, which bodes well for a record year, according to Deloitte.

Hotel transactions amounted to £1.5bn in H1 2014, compared to £0.9bn in H2 2013, which the firm tagged as the second strongest start of year since 2007 – a sign that investor appetite has reached pre-crisis levels.

Nick van Marken, global head of hospitality at Deloitte, said: “This is the second strongest start to a year since the peak in 2007. Macro-economic fundamentals have finally caught up with investment sentiment, which has further stimulated appetite for the hotel sector.

“We anticipate continued strong interest from investors but a potential lack of product given the substantial capital the market has to deploy.”

Regions dominate portfolio

Regions accounted for 60 per cent of the national M&A volume or £780m – this is the second highest figure in eight years, though still much lower than the £4bn peak in 2007.

Regional deals included the sale of the Four Pillars portfolio in January​ for £90m and De Vere Venues in March​ for £232m – both acquired by Starwood Capital.

Two former Akkeron Hotel portfolios also changed hands after going into administration (five leased hotels to West Register and the 14-strong Forestdale portfolio acquired by Somerston through St. James’s).

Deloitte explained that activity outside the capital had been boosted by investors looking to consolidate; banks offloading assets; distressed sales; few London deals; and improved trading fundamentals and higher profit margins.

London takes the lead for deal size

In terms of deal size however, London took the lead with the sale of the Edition by Marriott to ADIA for over £150m. Also in the capital, US REIT Strategic sold the Marriott Grosvenor Square for £125m to Joint Treasure – a private equity firm backed by Hong Kong-based Chow Tai Fook, the Singapore Wee Cho Yaw family and David Chiu of Far East Consortium.

Overall, portfolio transactions remained rare, and single-asset deals constituted 70 per cent of the total volume.

The firm added that capital markets were now functioning better, and that the growing presence of alternative lenders coincided with the increased availability of debt – all helping the sector’s competitiveness amidst an already stronger economy.

Prospects

In terms of outlook, van Marken predicted: “We see many international buyers, especially from the US, Middle East and Asia, showing continued strong interest in London, and increasingly in the regions.

“We expect deals will close more quickly in the second half of 2014 with significant appetite on the part of private equity in particular. The UK hotel sector appears firmly back in favour.”

These results do not include deals in the pipeline for the second half of the year, including the sale of 11 QMH properties to US investment firm Marathon Asset Management, which took place earlier this week​.

Among other transactions due to be closed in H2 are a five-hotel strong Hilton portfolio; a portfolio of LRG assets; and a portfolio of De Vere Golf Resorts and Village Urban Resorts –as well as the rumoured potential sale the recently-refurbished​ Grosvenor House.

Related topics: Business, Hotels, Trends & Reports

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