In 2017 investment into UK leased hotel assets reached £2.57 billion, accounting for 47.8 per cent of total UK hotel transactions (£5.4 billion) for the full year according to Savills latest data. Already in 2018 we have seen investment volumes for the first quarter reach above 15 per cent year on year, suggesting sustained increased appetite from investors for leased hotel assets.
So what exactly is a leased hotel asset?
The easiest way to think about it is to consider the big brands such as Premier Inn, Travelodge, Dalata, Staycity or Jurys Inn. These operators take long-term (20-year plus) full repairing and insurance leases, with index-linked rental uplifts, providing a stable and inflation hedged income for the landlord. This protects investors from a decrease in the real value of money and prevents landlords from having to fill the rooms themselves or take any operational risk.
Last year was a significant one for this part of the market, largely due to a number of major forward funding deals to Premier Inn and hub by Premier Inn in central London. There was also the sale of JW Marriot Grosvenor House Hotel to Ashkenazy Acquisition Corp and the Jurys Inn portfolio to Pandox. These assets have seen a rise in popularity as they provide sector agnostic investors with the opportunity to acquire an investment that offers long-term income.
Over the last 10 years, leased hotels have outperformed some of the other more traditional asset classes in terms of income and capital growth and we expect the sector to continue to perform well.
In terms of who’s buying, capital has traditionally come from domestic investors and in particular UK funds. Over the last couple of years, however, we have seen an increase in overseas investment, with US and Swedish investors being dominant in 2017. As new entrants, as well as existing hotel investors, move into the sector, it is important to fully recognise key pricing risks including rent cover, alternative operator solutions and vacant possession value.
There have been several key deals so far this year, including the purchase of 76 Travelodge hotels equating to £246 million as part of a wider acquisition by Secure Income REIT and the forward funding of the 248-bedroom Premier Inn Custom House in Cardiff by Aviva for £34 million.
We expect to see enduring interest in the leased hotel asset class throughout 2018 given the weight of capital available and investors continuing to seek long-term security. We also expect to see investors diversify their portfolios with the addition of newer brands such as EasyHotel and Roomzzz. Institutional investors will remain equally active targeting brands such as Dalata and Motel One, market leaders in Ireland and Germany respectively.
Further information
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