2016 saw £3.4 billion invested in the hotel sector, exceeding the 10 year average by £1 billion, according to research from Knight Frank. This comes as investors are increasingly seeking long-term defensive asset classes, which provide strong economic fundamentals and income security.
Knight Frank predicts that the UK hotel sector in 2017 will continue to see significant overseas capital due to the weakened value of sterling, with opportunistic investors seeking investment in both London and key regional cities across the UK. In addition to this, the market should also benefit from increased overseas tourism of 4% according to Visit Britain, and more staycation holidays due to the unfavourable foreign exchange rates following the economic impact of the EU Referendum vote.
Julian Evans, Head of Healthcare and Hotels, Knight Frank, commented: “We expect that the strong economic fundamentals in 2017 will further underpin investor confidence in the UK hotel property market. The bond markets are driving yield compression for hotel fixed income including ground rents where Knight Frank has sold record deals at approximately 2.3% net initial yield. A ground swell of cross border capital is searching for quality going concerns and fixed income.
“Therefore we anticipate that we will continue to see strong results as investors look for better returns on their investments and reassess their portfolio to incorporate more specialist property assets. Momentum will continue across the industry as it responds to threats from technological disruption taking place in the sector, through further consolidation or long-term partnerships.”
Specialist property, which Knight Frank defines as hotels, healthcare, student property, automotive and PRS, is being recognised by investors as a source of long-term assured income. £70.4 billion has been transacted in specialist property assets since 2007 and its popularity is set to continue, with investment volumes forecast to reach £15bn this year – according to Knight Frank’s report Rest Assured Specialist Property.
Income returns within the specialist sector reached 5.7% in 2016, exceeding the traditional commercial sectors, whilst four of the five specialist sectors saw investment volumes equal or exceed their five and ten year averages.