UK HOTEL & LEISURE PROPERTY 2018 - SPRING MARKET OVERVIEW - Knight Frank
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SPRING
MARKET OVERVIEW
UK HOTEL & LEISURE
PROPERTY 2018
A
UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW
EXECUTIVE SUMMARY HOTEL YIELDS V OTHER SPECIALIST SECTORS – Q4 2017
environment surrounding a Brexit deal, overseas investors with over £2.5 billion capitalisation rates is further proof of the
the unforgivable terrorist attacks and the of investment. Meanwhile, further shaping investment appetite, with net initial yields
volume of new supply entering the market. the market has been the wide availability currently at their lowest level on record.
and diverse sources of capital providing
A stronger than expected tourism boost, senior and mezzanine hotel debt finance, Whilst we continue to see strong interest
driven by the weak pound has resulted on a flexible basis with the ability to from overseas buyers who perceive value
in record numbers of overseas visitors execute large loans. With an increasing in the sector and have taken advantage 9.50%
9.00% 9.00%
arriving in the UK, with London in pool of institutional lenders, we envisage of the weaker pound, we consider that in 8.00%
particular benefitting from growth in the the debt market will remain highly the regional UK market, 2017 is ending 7.50%
long-haul markets. Meanwhile, with the competitive in the year ahead. with more caution as buyers are paying 6.50% 6.00%
6.00%
cost to travel abroad more expensive, fuller prices. The continued uncertainty 5.50%
4.75% 4.75%
JULIAN EVANS FRICS regional UK hotels have profited from A further trend set to continue into 2018, over Brexit has been a contributing factor 4.00% 4.00% 4.25% 4.25% 4.50%
4.00% 4.00%
Head of Healthcare, strong demand in the short break and is the growing demand by institutional in the pool of potential buyers narrowing
Hotels & Leisure staycation markets. investors seeking to invest in long-term, and with buyers becoming more vigilant,
fixed-leased hotel assets, which provide taking greater time to complete their due
This year has seen a substantial secure, index-linked cashflows, backed by diligence. Opportunities are there for
2017 has proven to be another positive uplift in investment activity, as strong a strong covenant. The recent acquisition the taking and looking after a potential
LONDON LONDON REGIONAL UK REGIONAL UK STUDENT CARE SURGERIES PRIVATE ACUTE SPECIALIST SPECIALIST
year of revenue and profit performance fundamentals underpinning the sector by LGIM Real Assets (Legal & General) purchaser will be instrumental to the deal
HOTELS HOTELS HOTELS HOTELS ACCOMMODATION HOMES (PRIME) HOSPITALS CARE HOMES SCHOOLS
for hotels in the UK, with GOPPAR continue to make hotels an attractive acquiring the newly opened Hampton by flow in the year ahead. (PRIME) (SECONDARY) (PRIME) (SECONDARY) REGIONAL UK (PRIME) (PRIME) (PRIME) (PRIME)
growth driven through advances in the investment proposition. Key trends for Hilton at Stansted Airport illustrates the
average room rate. This is a remarkable 2017 have included a strong surge in current demand in the investment market
achievement and testament of the portfolio activity, portfolio breakups, for prime, internationally branded, quality
resilience of the UK hotel market, given resulting in larger single assets coming assets with significant growth potential.
the challenging and uncertain trading to market and significant appetite by The compression of fixed income
Fixed income
Going Concern
SOURCE: Knight Frank Research
UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW
HOTEL TRADING PERFORMANCE
HISTORICAL HOTEL YIELDS (GOING CONCERN) 2007-2017 ROLLING 12 MONTHS (DECEMBER - NOVEMBER 2016/17)
LONDON
14.00% 7.0% 5.3% 6.6% 6.3%
12.00%
10.00% £134 £185 £84 25%
8.00%
6.00%
4.00% RevPAR TRevPAR GOPPAR Payroll
% of total
2.00% Revenue
UK REGIONAL
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10 YEAR
AVERAGE
5.1% 3.6% 4.3% 3.3%
London Prime
Regional UK Prime
Regional UK Secondary
£65 £112 £36 30%
SOURCE: Knight Frank Research
RevPAR TRevPAR GOPPAR Payroll
% of total
Revenue
SOURCE: HotStatsUK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW
KNIGHT FRANK FORECAST 2018 HOTEL SUPPLY GROWTH 2017
LONDON UK REGIONAL
-0.5% 3.5% 2.9%
2017
81.5% £173 £141
C. 489,000
ROOMS
LONDON
2017
C. 150,400
ROOMS
OCCUPANCY ADR RevPAR 2017 2017
SUPPLY SUPPLY
GROWTH 2017-2020 GROWTH
0.0% 3.0% 3.0% 2017-2020
+3.1% C. 21,500 +1.7%
ROOMS
C. 15,000
ROOMS
PIPELINE 2017 PIPELINE
GROWTH C. 8,400 GROWTH
77.5% £89 £69 2017
+3.2% ROOMS +1.4%
C. 5,500
ROOMS
UK REGIONAL BUDGET BUDGET
HOTELS HOTELS
= 60% OF = 65% OF
NEW SUPPLY NEW SUPPLY
EXISTING NEW EXISTING NEW
PIPELINE (3,200 ROOMS) PIPELINE (5,400 ROOMS)
SUPPLY OPENINGS SUPPLY OPENINGS
OCCUPANCY ADR RevPAR
SOURCE: Knight Frank Research SOURCE: STR, Knight Frank ResearchUK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW
HOTEL ANALYTICS
HOTEL PERFORMANCE TOURISM TECHNOLOGY CAPITALISATION RATES TRANSACTION VOLUME
Modest growth in key trading performance indicators Despite major terrorism and security concerns, hotel Technology will continue to have a substantial impact Investor appetite in key primary gateway cities will Despite the uncertainty over Brexit, full year hotel
is expected in 2018, albeit at a slower rate than in performance is expected to be bolstered by continued on the UK hotel industry, with the need to invest fast continue to put pressure on capitalisation rates, investment of above £5 billion is set to be recorded
2017. Nevertheless, the headwinds of rising costs strong growth in tourism, with the weak pound becoming a necessity. Increased competition more especially where limited pipeline and a resilient trading in 2017. This represents a 35% rise in investment
in operational expenses, payroll and business rates continuing to make the UK an attractive destination for intense cost control pressures, cyber security, more performance allows for income growth to be built volume compared to the previous year, with a plethora
highlight the challenges ahead for the industry, at overseas visitors. A record 27.1m visits was recorded stringent data protection regulations and social media into valuations. Fixed income margins are likely to of investors and a surge in portfolio activity. Overseas
a time of heightened concern with Brexit casting a for the 8-month period to August 2017, an increase are some of the major challenges that the industry has compress further, especially where stock is limited and investors with long-term aspirations continue to view
shadow over the future of the economy and the free of 8% on the previous year, combined with 10% to embrace, combined with the adoption of mobile long-term, secure income streams are offered with a London and key regional UK cities as an attractive
movement of labour; consumer confidence softening growth in spend of £16.4 billion. With strong inbound technology altering consumer expectations. As such, strong covenant. Where income growth is impacted as investment destination. Long dated, secure income
and competition intensifying. Whilst top line indicators tourism growth set to continue in 2018, combined with the growing need for hotels to adapt their services to a result of rising costs, values may soften slightly in the streams with strong covenants and internationally
are a good measure of hotel performance, a proper and resilience in the domestic “staycation” market, strong provide their guests with advanced digital interaction year ahead. recognised brands will remain important investment
thorough understanding of the factors impacting upon tourism demand should provide further growth potential cannot be ignored. Industry players that embrace considerations for the future.
GOP will become far more critical in the year ahead. for the UK hotel market in the year ahead. technological change, with the use of customer-centric,
next generation technology, through the use of artificial
intelligence and Cloud technology are likely to become
industry leaders and innovators of the future.UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW UK HOTEL & LEISURE PROPERTY 2018 — MARKET OVERVIEW
OUR PEOPLE
Knight Frank’s dedicated and highly experienced team provides a discreet and efficient consultancy service advising
on the full spectrum of hotel and leisure assets. In taking time to understand the needs and objectives of our clients,
we continue to provide uncomplicated property advice and solutions that add value at every stage.
HEAD OF HEALTHCARE, RESEARCH HOTEL HOTEL AGENCY
HOTELS & LEISURE VALUATIONS & DEVELOPMENT KNIGHT FRANK FINANCE
PHILIPPA GOLDSTEIN IAN ELLIOTT, MRICS ALEX BRADBEER, MRICS ALEX STURGESS, MRICS ALEX MACAULAY LISA ATTENBOROUGH
JULIAN EVANS, FRICS Hotel Analyst Partner, Head of Hotel Valuations Senior Surveyor Partner, Head of Hotel Agency Graduate Partner
+44 20 7861 1147 +44 20 3826 0600 +44 20 7861 1082 +44 20 7861 1442 +44 20 7861 1164 +44 20 3826 0690 +44 20 3909 6846
julian.evans@knightfrank.com philippa.goldstein@knightfrank.com ian.elliott@knightfrank.com alex.bradbeer@knightfrank.com alex.sturgess@knightfrank.com alex.macaulay@knightfrank.com lisa.attenborough@knightfrank.com
ALYSSIA CLARE JESSICA HIND MIKE KELSEY HENRY JACKSON, MRICS GEORGINA MCCULLOCH
PA to Julian Evans Office Manager Associate Partner, Hotel Agency – Regional UK Team Secretary
+44 20 7862 2253 +44 20 3909 6827 +44 20 7861 1081 +44 20 7861 1085 +44 20 7861 5262
alyssia.clare@knightfrank.com jessica.hind@knightfrank.com mike.kelsey@knightfrank.com henry.jackson@knightfrank.com georgina.mcculloch@knightfrank.com
KAREN CALLAHAN, MRICS LILIANA IELACQUA, MRICS TOM OAKDEN, MRICS
Partner Associate Partner
+44 20 7861 1086 +44 20 7861 1084 +44 20 3826 0607
karen.callahan@knightfrank.com liliana.Ielacqua@knightfrank.com tom.oakden@knightfrank.com
JONATHAN CRITCHLEY, MRICS HECTOR AHERN KIT ABRAM, MRICS
Partner Graduate Surveyor
+44 20 7861 5172 +44 20 3826 0600 +44 20 7861 1249
jonathan.critchley@knightfrank.com hector.ahern@knightfrank.com kit.abram@knightfrank.com© Knight Frank LLP 2018 — Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names. knightfrank.co.uk/commercial/hotels
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