Capital Growth Anticipated for London Hotels

Hotels in London are expected to experience capital growth of 3.9 per cent during 2012. This is the assertion of Savills, with the firm anticipating continued strong interest from overseas buyers in the four and five-star hotel sector...

Hotels in London are expected to experience capital growth of 3.9 per cent during 2012. This is the assertion of Savills, with the firm anticipating continued strong interest from overseas buyers in the four and five-star hotel sector thanks to the high numbers of tourists expected for the Olympic Games and the Queen's diamond jubilee celebrations. The organisation added one of the reasons why this asset class appeals to investors is the yields, which currently stand at 6.5 per cent on average in the UK.

Savills' joint head of hotels Robert Seabrook commented: "The biggest single challenge facing investors in the UK is the lack of debt. This, coupled with declining trading performance, is leading to a significant repricing in the regions, while the weight of overseas capital focused on London is driving pricing higher, particularly at the trophy-end of the market." The firm revealed 68 per cent of real estate investment in the hotel sector in 2011 was ploughed into properties in the south-east of England, with total volumes nationwide hitting GBP 1.5 billion.

Last year, capital growth across London's hotels was better than expected, climbing by 9.8 per cent. However, the picture was different at regional locations, with a 3.7 per cent decline recorded in 2011. The hotel markets outside the UK's capital are not expected to post growth until 2013, with values expected to slide by a further 3.3 per cent this year. At the end of January, Jones Lang LaSalle Hotels predicted the Europe, Middle East and Africa hospitality investment market will be characterised by debt restructuring deals in 2012. The firm suggested the gap between pricing for primary and secondary assets will widen, while a rising number of distressed properties are expected to enter the market as banks look to meet the stricter requirements placed on them regarding the level of capital they hold.

- Tuesday 13 March 2012

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