UK investment in the Hotel Industry has increased by 28% year on year reaching GBP3.2billion as of the first half of 2018. This is driven by portfolio sales accounting for 71% or GBP2.3billion and dominated by overseas buyers accounting for 51% or GBP1.6billion. Most active amongst the overseas buyers are Canadians investing 24% and Israelites 14%.
Most popular investment location is London accounting for 38% of total investments including the sale of RE Hotel in Shoreditch to Crosstree, and the sale of 5 Strand to Real Estate Developer ABIL Group for more than 90million GBP.
Second most popular investment location is the south-east accounting for 23% of total investments. While the north is the third most marketable investment location with around 15% of total investments.
Martin Rogers, the head of UK hotel transactions at Savills predicts the Hotel Investment Industry to remain active and total investments to reach approximately 5.4billion GBP by end 2018.
From an investors point of view, the winning philosophy for the hotel investment industry in the UK is
– Familiarize with the brands available. Before you select a hotel to invest in, make sure to do thorough research on the prospective brands. This is normally achieved through a due diligence process and there are many 3rd party professionals who can perform this for a fee. Factors to consider are the present financial condition of the brand and its short term and long -term prospects;
– Decide on which market to prospect and focus on it. While taking considerations of the prevailing hotel brands in the global arena, you must zero in on UK market which is your prospective market. Important is the current condition of government (consider the Brexit and its impact on the hotel industry), peace and order, and the local laws which impact the hotel industry;
– Know your investment budget by heart. Is your investment to be sourced internally or from bank borrowing or from private investors. Master your financial models and make sure to work around it. You wouldn’t want to arrange the acquisition of a hotel asset in the UK which would not provide you with the acceptable cash inflows to cover your debt payments or dividend payments moving forward.
– Know the fine prints in the contract before you sign. You do not need to be a lawyer yourself, but you might need legal assistance or perhaps a finance professional assistance for this very important philosophy. Remember that once signed a contract is binding and all parties concerned are expected to deliver. You wouldn’t want to include something in the contract specifically those with legal and/or financial implication which is not covered in your financial model.
– Know and understand your hotel operators prior to making any investment decisions. Take note that your Profit and Cash forecasts are greatly leveraged with the Hotel Operator. It is important that you the investor and the hotel operator have the same mindset in terms of the prospective hotel operations.