Hotels for sale UK

News - 29/08/2018

UK Regional Hotels Market Update

In our view, both overseas inbound and domestic investment into the hotel sector will continue into 2019, as there is sustained growth and a clear investment appetite.

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Overall, the positive trading performance within the hotel sector continues, although there is some evidence of nervousness as buyers and operators adopt a more cautious approach to investing.  This uncertainty may encourage some owners to reconsider their future plans around further investment to improve their offering, but may also encourage some to exit.  

Slower growth ahead

The UK hotel’s sector has enjoyed improved trading conditions for some time now, with healthy performance underpinned by both domestic and overseas leisure visitors.  The industry’s trade media is predicting a slower pace of growth ahead, however, thanks to the weaker pound and an increased supply of hotel stock.  Global political volatility, an expected de-acceleration in UK economic growth an ongoing uncertainty surrounding Brexit are also all contributing to restraint.  Caution is increasingly on the horizon, although in our view, growth continues to be predicted. 

Regional occupancy up

On a regional level, the outlook for the hotel sector does remain favourable, particularly in those university towns and cities attracting a robust supply of international leisure travellers which has supported increasing RevPAR performance.  This suggests that while there is some uncertainty, domestic and overseas visitors are favouring short city breaks.  While corporate growth has returned with overnight accommodation, the leisure market remains extremely buoyant. Furthermore, the discerning visitor, whether domestic or overseas, is looking beyond core city locations towards popular regional destinations – Bath, Cambridge, and Edinburgh, for example -  to enjoy extended breaks in hotels particularly with spas and space to unwind.   This has had an extremely positive result on regional occupancy, with the majority seeing an uplift and average occupancy rates now exceeding 70%.  Nevertheless, the increasing number of internationally branded hotels will undoubtedly affect results for independent operators, specifically ADR. 

What's next?

Looking at this year, we can see that UK GDP growth has slowed to around 1.5%, as the effects of the weaker pound on inflation and Brexit-related uncertainty continue to feed through.  Moderate growth in consumer spending growth is expected, as inflation influences the power of spending and as anticipated, operators continue to report that labour costs and increased supplier overheads are impacting on operating profit.   Regardless, buyers are still keen to compete for the right opportunity, particularly where sellers can demonstrate high quality and a healthy profit margin – and where there is scope to add future business value.

Lastly, there is a great deal of readily available cash assisting buyer investment by lenders, who continue to view hotel investment as a safe sector to provide debt.  As a result, LSH forecasts that both overseas inbound and domestic investment into the hotel sector will continue into 2019, as there is sustained growth and a clear investment appetite for hotels from both institutional and mainstream real estate investors. 


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