I don’t think it is an exaggeration to say that there are tens of billions of pounds looking to check-in to London hotel market, in fact I can’t remember a time when there was a more diverse range of investors interested in entering the sector.
London has had an active year so far, predominantly for single asset transactions with around £900m closed year to date. The strong appetite is further evidenced by the other deals available in the market, taking the London deal pipeline to well over £1 billion.
We are seeing a real drive from investors looking to deploy capital into London hotels across the spectrum from single asset acquisitions, undertaking refinancing, to the funding of platforms, to financial institutions looking for income strips through ground rents. For many, the capital provides a crucial stepping stone for access into Europe. This is particularly true for those investing and growing hotel platforms – building a brand and establishing success in London provides much needed evidence and justification for movement onto the continent.
We have seen this happen with Edyn Hotels and other platforms such as Z hotels and Point A which are currently on the market and raising potential buyers’ interest due to the roll out potential. In addition, there are numerous new overseas entrants to the market looking for asset and brand representation.
Weight of capital will fuel 2022 rebound
During the pandemic London was hindered by the lack of foreign visitors, and unlike its regional counterparts, didn’t benefit as much from the staycation boom that has driven a large proportion of the market this year. However, the worst is now over and there is a definite buzz about London as overseas visitors return.
I fully anticipate a rebound in 2022 for the London hotel market, which is probably sooner than the majority of those in the industry. What is crucial to remember is that the highs and lows of the current market are being driven by restrictions and not by economic constraints. It is still a competitive environment out there and this has meant minimal price reductions, compounded by low stock levels and led to a mismatch between supply and demand.
The lack of physical assets for sale has also driven the rise in interest for funding, refinancing and platform opportunities. Behind these is a real burgeoning weight of capital from pension funds that are chasing fixed income producing hotel properties. Historically underexposed to the hotel sector, they are now waking up to the potential returns that can be generated. We are seeing greater demand for operational real estate from financial institutions including hotels and in particular room driven hotels and serviced apartments.
About the author
Saar Sharon is head of Hotel Capital Markets. He has more than 28 years’ of commercial real estate experience specialising in hotels advising on disposals, acquisitions, asset management, funding, development leasing and management and franchise agreement across all classes in UK and Europe.
To contact Saar, email Saar.Sharon@colliers.com