London hotel property prices have reached a new high of £500,000 per room, which are more expensive than an average London apartment of £417,234* according to advisers Colliers International.
Colliers analysed more than 2,500 two to five-star standard hotel rooms that transacted in Central London over the last two years**, at an aggregate price of over £1.5 billion, which showed the average transaction taking place at around half a million pounds per bedroom. More specifically, average prices per category per room showed:
• Two to Three-star hotels - £263,000
• Four-star hotels - £540,000
• Five-star hotels - £738,000
Record prices for prime hotels have also exceeded £1,000,000 per room. Colliers sold the 33-room Parkes Hotel in Knightsbridge, which achieved £1.015m per room. Five-star London hotel transactions conducted by Colliers recently included the Wyndham Grand Chelsea Harbour (pictured below).
Colin Hall, Head of London Hotels Agency at Colliers International, commented that the recent price increases have been achieved both through continued improvements in trade and further yield compression.
He explained, “It is now virtually impossible to buy a freehold Central London hotel operation for under £200,000 per bedroom, irrespective of condition, trade or location. Two years ago a similar hotel would have sold for £150,000 per room, which shows how quickly the market is moving.
“Currently, there is the least availability of stock at any time during the last 25 years. It also means that hotels, especially in Central London, are challenging residential investment values. More particularly, we are seeing demand being driven by international appetite.
“Overseas buyers and some UK funds will now happily take a net initial yield of 4.5%, but even this is seldom available. Owners are just not incentivised to sell with interest rates continuing to run along the floor. They would rather leave their money where it is. London hotels are seen as a very safe long term bet both for running yields and capital appreciation.”
Colliers International also carried out analysis of the Central London branded budget hotel investment market over the same period, where more than 1,500 bedrooms changed hands at an average price per room of £177,000 and average net initial yield of 4.77%.
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* According to Land Registry’s December 2014 records measuring flat or maisonette properties.
** Hotels with less than 30 bedrooms, as well as branded budget hotels were excluded from the survey.