Specialist business property adviser, Christie & Co provides an overview of the hotel market in the first half of 2019, reflecting on previous predictions, emerging trends and challenges facing the sector.
Transaction values to date in 2019 have been led by portfolio deals, including the £1 billion sale of four Grange hotels to Queensgate, and other portfolio transactions still in the market which are expected to conclude in H2 2019. Single asset regional transactions continue to be undertaken, including the recent sales of The Stanwell Heathrow Hotel and Hilton Milton Keynes, demonstrating good demand for well-located hotels.
Christie & Co anticipates enhanced activity in H2 with a number of transactions currently in the market receiving high levels of interest; the Days Inn Hotel Waterloo, Horwood Estate in Milton Keynes, Staverton Estate in Northamptonshire, Cranage Estate in Cheshire and Holiday Inn Express Ealing. In addition, there are a number of other opportunities yet to launch.
UK growth and performance
Investor appetite in the sector remains strong with a range of capital sources chasing a limited supply, particularly in and around London and major UK cities. London assets remain particularly attractive as the City has performed better than expected from 2018, with a 1.7% increase in occupancy, 1.9% in ADR, and 3.6% in RevPAR, March YTD.
Christie & Co predicted at the beginning of the year that both London and the regions would continue to perform well in 2019, albeit at a subdued rate of growth. However, while London has exceeded this expectation, the regions have in fact shown negative growth so far in 2019 at -2.9% predominantly driven by a reduction of -2.3% in ADR. This follows strong performances in recent years in regional cities, such as Belfast, Plymouth, Newcastle and Cardiff and increased supply into most major cities.
Impact of increased costs
Growing costs continue to be a concern, with increases in the National Living Wage, food inflation, and business rates taking a toll on operators’ bottom lines. While some operators are able to offset challenges to profit margins, many are still affected, and Christie & Co noted in Business Outlook that there may be an increase in distressed assets towards the end of 2019. However, the few hotel casualties seen to date do not appear to have been financial performance led.
As Christie & Co highlighted in Business Outlook 2019, the hotel sector is becoming more innovative with new technology and ideas. Automated processes such as mobile check in or reducing staff by offering self-service breakfasts are allowing operators to minimise costs, whilst others are adding to their services to justify higher rates. Recent brands such as Tru and Canopy under Hilton, and Even and Avid under IHG are emerging to cater to more tailored customer segments, aiming to improve occupancy and market share.
Christie & Co noted that investors still appear keen on the UK hotel market, with a variety of capital from international sources and private equity funds, despite Brexit. The most notable impact of Brexit which Christie & Co identifies is a general increase in length of time to complete transactions. While some deals are taking longer, overseas demand does not seem to have been dampened, with Israeli investors particularly active in 2019.
Christie & Co will be releasing their annual report on European travel and hotel investment trends in November 2019, which provides a comprehensive overview of the market across the UK and Europe.
Barrie Williams, Managing Director – Hospitality at Christie & Co comments, “Whilst the market is undoubtedly more difficult, there remains widespread investor interest and debt availability for the right hotels in desirable locations across the UK.”
Carine Bonnejean, Managing Director – Hospitality Consultancy at Christie & Co comments, “Despite some clear uncertainty, our UK Hotels Consultancy team has remained very busy with development appraisals, due diligence, repositioning and branding assessments across London and the regions and we anticipate a strong second half in terms of activity.”