Hotel investment volumes in the United Kingdom have seen a 28% increase over the year to date, according to JLL.
Single asset sales have driven this increase with 57 deals, totalling £1.7bn completed by the end of August, which is 65% of the total transactional volume.
JLL forecasts total UK investment activity in 2017 to exceed 2016 levels of £3.3 billion.
Driven by solid hotel operating performance, London remains the top hotel investment hot spot with £1.2bn transacted so far this year – a 40% increase compared with the same period last year.
Transactional volumes outside of London and the South East have seen a 7% increase, led by Manchester, Birmingham, Edinburgh and Bristol.
Kerr Young, director in JLL’s Hotels & Hospitality Group, said: “The UK continues to attract overseas investors, particularly those with an opportunistic nature and able to take advantage of the recent currency devaluation. At the end of August, international capital accounted for 32% of total UK investment volumes, compared to 22% at same time last year, which clearly demonstrates ongoing confidence.”
Excluding London, the UK’s regional cities currently have around 12,700 hotels with circa 487,000 rooms. The market is dominated by three-star hotels which make up 32% of the room supply.
JLL forecasts that the budget sector will see the largest growth over the next two years with 47% of new supply into this segment.
Young added: “Looking forward, developers and operators are likely to focus on regional cities, which are expected to see around 20,000 additional rooms by 2019, due to the high barriers of entry and competing land use in London.
“In Manchester alone, driven by ongoing growth of high quality infrastructure, 1,788 new hotel rooms are expected to be added to the current supply of circa 17,350 rooms by 2019. The city’s economic growth has been drive by vast investments in high-quality development such as MediaCityUK and Airport City, which has continued to have a positive impact on Manchester’s hotel market.”
Record levels of visitors in the first seven months of this year have resulted in UK tourist spending expected to reach £25.7 billion, a 14% increase year on year and the strongest growth for five years.
However, while leisure travel continues to flourish, business travel may come under some pressure as corporate budgets feel the strain.
In terms of hotel operating performance, latest forecasts from STR indicate that Regional UK will see an uplift in RevPAR of 2.5% in 2017 and 2.0% in 2018, both supported by average rate growth. Whilst the growing supply poses pressure on hotel performance, the increase in tourism activity is likely to absorb the excess in the supply.