Remarkable growth boosts UK hotel investment to £7.4b

With an increase of £1.7b and a 29% year-on-year rise, UK hotel investment reached a staggering £7.4b last year.

According to global property adviser Knight Frank, the £7.4b investment figure was also a whopping 102% above the 12-year average of annual hotel investment activity of £3.7b. This remarkable and unexpected growth last year was the result of a 50% increase in international investment, as overseas buyers were responsible for £4.9b invested into the UK hotel market. The capital invested was a 50-50 split between London and the UK regions.

Hotel investment breakdown:

  • UK investors were responsible for a third of investments at £2.5b
  • European investors were responsible for £2b (27%) with £1.6b coming from France alone
  • In bound capital from the US increased by 77% to £.15b (21%) due to substantial institutional interest

From one capital to another

The capital continues to remain an attractive target for hotel investment, as totals climb to £3.3.b, where hotel site acquisition and forward funding of hotel projects equated to 21% of the total investment. The interest from international investments was the driving force behind London’s hotel market, accounting for £2.4b of total investment.

Outside of London, Edinburgh ranked as the most attractive regional UK city for hotel investment, accounting for a transaction total of £525m with a 13% share of the UK regional investment market.

Local authorities setting market trends

2018 saw the emergence of a surprising new trend, as local authorities increased activity, capitalising on low-interest central government loans to purchase commercial property. Last year, local councils invested a record £93m in the hotel sector, an increase of 182% on 2017 (£33m).

Head of hotels at Knight Franks, Shaun Roy said: “With rising interest rates and prolonged Brexit negotiations, there is a strong demand for secure, long-term fixed income assets which has led to an increase in investment in hotels.”

Followed by “The capital continues to remain an attractive destination for global and domestic investors, with opportunistic hotel investors stimulated by the attractive levels of growth prospects in London over the long-term.

“Furthermore, the proportion of capital allocated to specialist property is evident from the growing trend for the inclusion of hotel real estate in institutional funds. There is now a much greater understanding of the fundamentals of hotels as a specialist sector, which has led to over £1.1b invested in hotel development and forward funding for future hotel projects.

“We envisage further inbound investment, should sterling weaken further following the UK’s exit from the EU. Overseas capital flows and institutional investment is expected to remain buoyant as greater strategic importance is placed on investing in alternative specialist sector businesses.

“Thus far, the pace of investment in 2019 has been strong, with London in the alluring position of being the world’s most liquid and transparent real estate market, cementing its reputation as a safe haven for international capital.”