This year heralds the end of distressed sales in the UK, which has left the sector stronger, but will mean it will be “difficult to buy well”, according to Whitebridge Hospitality’s annual forecasting event.
Challenges now facing the industry include the weakening Euro and an increase in supply coming onto the market.
Philip Camble, director, Whitebridge Hospitality, said: “With luck [in the UK] the worst is over in terms of distressed sales. Across Europe it is very different. Both the UK and Ireland are the best performing in Europe and both have been able to restructure, where their siblings in Europe have been unable.”
Nick Pattie, managing director, Whitebridge Hospitality, said: “2014 was a year of consolidation and in 2015 it’s going to prove measurably difficult to buy well in the UK.”
The regional UK continued to dominate the European transactions market, driven last year by Goldman Sachs’ acquisition of 144 Travelodges for GBP520m.
Camble also pointed to a shift in investor nationality, with investors in Europe and the US seeing a rise in activity – aided by a return to the sector of private equity – while those in the Middle East had been less active. The increase in investment in Germany, which is viewed by many as a safe haven, has meant that leases are back in favour, with a rise in hotel companies investing meaning that there has been an increase in self-operating structures.
Looking forward, Elizabeth Winkle, managing director, STR Global, said that a rise in supply in the regional UK, forecast to rise by 1.6%, would gave an impact on growth, although she reassured that “demand will continue to outpace supply growth”. She added that the rise of the economy sector would mean “a new normal of what regional UK looks like… it will have a very different face”. According to STR Global data, the economy sector now accounts for almost 30% of the regional UK’s hotels
Winkle said: “2014 was the year of the staycation. If the Euro gets weaker, many Brits will go abroad. Potentially the strength of the dollar will mean more arrivals from the US. The question is whether we have the confidence to price the products and see some rate lift.”
The views were echoed in a forecast from HVS, where Russell Kett, chairman, HVS London, said: “We are seeing a number of new investors in the sector including insurance companies and hedge funds, which together with sovereign wealth funds, high net worth individuals and private equity firms ensure there is keen interest. Indeed, it is likely that the major hotel transactions this year will be dominated by private equity buyers.”
“Lack of availability as well as improved demand and profitability should mean that hotel values continue to rise for the foreseeable future.”
The forecasts did not end there for Camble, who, in addition to predicting a rise of more than 2% for revpar in London and the return of Orient-Express Hotels as a brand (possibly via Accor), is anticipating that a third London building will join the ranks of the Cheesegrater and the Walkie Talkie as a building “that will seek to achieve OO status”. Those who have so far dodged falling bolts and blinding rays of light will be keeping their wits about them walking through the City this year.
After also forecasting that France would finish higher than England in this year’s Rugby World Cup, observers fear that, for Camble, the threat of attack may come from a source a little closer to home.
HA Perspective [by Chris Bown]: According to agent Savills, the UK market saw its highest level of transactions since 2006. And while the banks may have largely sold out of their problem hotel groups, there are indications the agents will be busy again in 2015.
Shortly before the year end, Malmaison group owners KSL were reported to be ordering a strategic review that could see them sell on some of their holdings, having nursed them through the tough times. Should a willing Asian insurance company or Middle Eastern investor be found, they could engineer a profitable check-out; their actions will surely be closely monitored by rival private equity players who have bought into substantial UK portfolios.
As Winkle points out, the economy operators, led by Whitbread’s Premier Inn, are continuing to change the face of the UK hotel market. There is no sign of Premier Inn slowing down its UK growth, even as it heads into Germany and launches its Hub brand extension in city centres.