Hotel investment could benefit from a bumper 2017

Regional hotel rooms to record occupancy rates

Investment news that’s been released recently points to a bumper year for hotel room investment returns. With the Brexit vote pushing the value of the pound lower, the number of ‘staycations’ and overseas visitors to the UK is expected to increase substantially. PwC expects these market dynamics to push regional hotel room occupancy rates to record levels, and average daily rates (ADRs) look set to rise by almost 3%.

Here, I’ll look at hotel industry volumes and investment interest. You’ll get a feel for just what an exciting part of the economy the hotel industry is, and discover how to benefit from the forecast growth that exceeds the general economy.

Occupancy, revenues and room rates are expected to rise in 2017

Despite the uncertainty that surrounded the EU Referendum, regional hotels are expected to do particularly well in 2017, according to a report from PwC. While London hotels may suffer from a short-term oversupply of hotel rooms and Brexit concerns restrict inward business travel, regional centres look likely to benefit from the lower pound.

Cities such as Cardiff, Liverpool, Manchester, Birmingham and Edinburgh will be ‘star performers’ in 2017. PwC forecasts that more Brits will holiday in the UK and the number of visitors from overseas will increase, too. Occupancy rates are therefore expected to hit a record 77% and the ADR will stretch to £70 (from £68). Revenue per available room (RevPAR) will increase slightly to £54.

These are the kinds of figures that we’ve been expecting. The people we’re speaking to – hotel management and operations teams – all expect a record year in 2017.

Hotel investment is resilient

Brexit was a weight on investors’ minds in 2016, but despite this, the hotel investment sector has been resilient. Savills reported a rise in the number of hotel investment deals completed in the market (220 in 2016 vs. 195 in 2015), though the value was down (by £4 billion in the previous year).

Investment numbers from private individuals and property companies exploded (rising by 152% and 65% respectively). The key point is the increased number of deals is proof of investor demand.

Foreign investment into UK hotels is expected to remain strong

Savills predicts that hotel investment demand from overseas investors will remain strong in 2017. It says that even London will remain attractive to foreign investors. It cites the long-term attractiveness of London and the UK as a destination for visitors (both business and leisure).

It is not new news to us. We said immediately after the vote to leave Europe that we felt property investment from overseas investors would rise (because the fall in the pound makes UK property even better value for foreign investors) and that property prices would remain positive.

Don’t be put off by the sharing economy – Airbnb is not a threat

I hear all the time that Airbnb is the way forward and that it will do irreparable harm to the hotel industry. I just don’t buy it. PwC says that it believes the sharing economy and options like Airbnb will begin to bite the hotel industry. So far, though, it hasn’t.

Hoteliers up and down the country regard sharing platforms as no more than a moderate threat, and 60% of hotels have reported no impact to their business: that’s a number that supports PwC’s forecast of record occupancy rates this year.

How can you benefit from the strength of the hotel sector?

There are several ways in which investors might invest in the hotel's sector:

  • You could buy a hotel and manage it yourself; but, unless you’ve got extensive experience as an hotelier, I’d advise against this.
  • You might decide to buy a hotel and put in place a management team to run it for you – if you’ve got a few million quid stashed away, this is a possibility.
  • You could join increasing numbers of income and growth-hungry investors and invest in hotel rooms.

Unlike property investment, an investment in hotel rooms is relatively easy. Because of the lower entry level, there is no need for mortgages or another financing. In addition to this benefit:

  • Monthly income (at around 8% per year) is paid from the month after investment – the hotel is already a going concern
  • After the purchase is made, there are no further admin fees or management fees – what you see is what you get
  • At the end of the investment period, you’ll get your capital back, plus a guaranteed capital gain

If you want to boost your income, protect your capital, and benefit from guaranteed capital growth over a five-year period, contact our team today on +44 (0)207 923 6100 and ask about hotel room investments. You could be a phone call away from inflation-busting income and capital growth.

Live with Passion

Brett Alegre-Wood