Why hotel rooms could boost your investment profits

Sector growth should underpin profits for property investors

Investment research from PwC concludes that the hotel sector should continue its growth path in the coming two years. It forecasts higher earnings and increased room occupancy in London and the regions in 2017 and 2018.

We’ve experienced some tough times over the last few months. The Brexit vote brought its share of short-term economic concerns and political woes. It has also ushered in a period of currency weakness. It has made the UK a cheaper place to visit, and a more viable option for those taking ‘staycations’. Is there an investment opportunity that you could be missing?

In this article, we examine the latest PwC hotels sector investment research and assess whether hotel room investment will satisfy the long-term goals of property investors.

London is picking up

The EU Referendum hit the hotels business in London in the middle of 2016. By the end of the year, the capital’s hotels industry was booming again. RevPAR (Revenue Per Available Room) grew at its fastest year-on-year rate since 2012, when the sector was boosted by the Olympic Games.

PwC expects London’s hotels to have at least two more bumper years. Occupancy rates are set to rise to 82% from 81%, and the RevPAR is expected to increase from £116 to £123. Behind this advance is a better-than-expected economic outlook and, as we’ve stated above, the weaker pound sucking in tourists.

PwC’s analysis has found two potential threats to this rate of growth. First, the potential of London to be hit by security concerns. Second, the number of hotel rooms being added to supply in the capital. Around 13,000 new hotel rooms are planned for 2017/18, so filling them may be a challenge.

The regions are performing well, too

Outside London, hotel capacity is expected to increase by 12,000 new rooms in 2017. It will be the highest supply increase since 2008. Manchester, Edinburgh and Belfast are all set to see their hotel room capacities rise by between 1,200 and 2,000 new hotel rooms.

Despite this growth in supply, PwC expects occupancy to remain at its current level of 76%. It believes RevPAR will increase from £53 in 2016 to £54 this year and £55 in 2018. If this proves to be the case, it will be seven years since RevPAR last fell.

Okay, great for two years…  but then what?

These forecasts are underpinning short-term prospects in the sector, but what about the longer term?

It is where hotel room investment deals come into their own. The short-term prospects – more visitors, higher occupancy rates, and bigger profits – are encouraging hotel owners and management companies to invest in upgrading and improving their offerings. To do so, a proven strategy has been to sell hotel rooms to investors.

Property investors buy a room on a fixed-term contract. Usually, this is five years. In return, the investor receives a guaranteed income (typically around 7% to 8% per annum) and a guaranteed repayment of capital plus growth at maturity. The structure of this style of investment reduces risk. As the investor, you receive a monthly income from the outset, and the buyback option gives you the safety of capital protection.

Is hotel room investment for you?

If you want a hands-off investment with the safety of capital protection and a guaranteed income, then investing in hotel rooms could be for you. However, the final decision will depend on other factors, too. For example, what are your long-term goals, do you have access to emergency cash (so you don’t have to sell prematurely), and what is your tax position?

One thing we certainly can say is that, when we look at the opportunities in the UK property market, the returns available, and the risks associated, hotel room investment could be exactly what you are searching for.

Do you want to assess how big the positive impact could be on your investment portfolio by making a hotel room investment? Contact one of our team on +44 (0)207 923 6100. We’ll be happy to discuss objectives, strategy and returns, as well as our latest recommended hotel room investment opportunities.

Live with passion

Brett Alegre-Wood

P.S. For more information about hotel room investments and the hotel industry, read our investment guide discussing hotel room investment for investors who want yield. Or you might like to watch my video series introducing hotel room investment as a property investment strategy.

P.P.S. Download our “Hotel Room Investments” book to discover:

  • Why the next decade will see massive growth in hotel investment
  • Why hotel investment should be part of your overall portfolio strategy
  • How to strengthen cash flow in your portfolio
  • How to avoid the pitfalls others fall into