• Regions under pressure 

Shearings Leisure Group has bought three hotels to the market in the regional UK, with total offers sought of GBP4.55m.

The decision came as ongoing cost creep drove a 0.9% decline in goppar (operating profit) in April in the UK, according to Hotstats.

The hotels being marketed were the Strathmore Hotel, Morecambe, Eden Arms Hotel, Durham and the Portpatrick Hotel, Portpatrick, Scotland.

Paul Barrasford, a director in the hotels afgency team at Colliers International, said: “Although part of a larger group, each hotel is an established and successful business in its own right, in particular, due to recent and major refurbishment programmes, increased private leisure and the popularity of these hotels amongst local clientele for a wide array of corporate and private events. From both an operational and property perspective, there are exciting value add opportunities at each property.”

In April Shearings Leisure Group announced plans to reflag two of its hotels under the Country Living brand, after signing a deal with publisher Hearst UK. The hotels, currently under part of Shearings’ Coast & Country Hotels, will continue to be operated by the group, which will also pay for the refurbishments.

The new partnership will see The Lansdown Grove in Bath and The St George in Harrogate, undergo an extensive refurbishment before being rebranded as ‘Country Living Hotels, exclusively by Coast & Country’.

Richard Calvert, Shearings Leisure Group CEO told Hotel Analyst that the agreement came from “a brain storming session with Hearst and Shearings Leisure Group. The Country Living brand gives us an opportunity to reach new customers through the well-respected and much loved brand of Country Living.”

The hotels were brought to market as CBRE reported that the first quarter of 2018 saw UK hotel investment volumes reach EUR1.85bn, up  81% year-on-year, driven by several nationwide hotel portfolio deals, including the GBP135m sale of seven hotels to Starwood Capital Group and the sale of the Grove London Travelodge portfolio for GBP72.3m.

In contrast, despite continued high investor demand, overall European hotel investment volumes slowed over the period, with investment volumes for the quarter totalling EUR4.02bn, down 9% on the year. This was attributed to a shortage of hotel assets for sale, as opposed to a lack of buyers.

Kristen Kozlowski, senior director, CBRE Hotels, said: “Whilst a shortage of stock has caused a slowdown in overall European hotel deal activity, continued investor demand is generally holding hotel yields at a three-year low. Notwithstanding the impact of the future interest rates rises, appetite in the fixed-income and long-leased space in the UK and Germany could compress yields further in the short-term and is fuelling investment in secondary markets.”

Potentially affecting the attractiveness of the UK markets was profits growth, with hotels reporting a 0.9% fall in goppar in April, according to HotStats. Hotels in the UK recorded a 0.6% year-on-year increase in trevpar in April, but the marginal revenue increase was not sufficient to offset the uplift in costs, which included a 0.4-percentage point increase in Payroll to 29.6% of total revenue, as well as a 0.1 percentage point increase in Overheads, which grew to 22.8% of total revenue.

The fall was the sixth consecutive month of year-on-year profit decline and contributed to the 3.7% decline in this measure for year-to-date 2018, to GBP39.31 per available room.

Hotstats said: “In addition to escalating costs, one of the key challenges to performance at hotels so far in 2018 has been volume levels, which appear to be on the slide.” This was illustrated by the 0.9-percentage point year-on-year drop in room occupancy this month, to 77.8%, which wiped out the 0.8% increase in achieved average room rate, to GBP112.56, and contributed to the 0.3% drop in revpar, to GBP87.59.

“Demand levels have softened since the beginning of 2018, which may be attributed to the poor weather, the slowing in the UK economy and, this month, the timing of Easter. But it’s also clear that the increase in minimum wage and employer pension contributions have caused an increase in payroll levels. So, despite a rise in trevpar, payroll as a percentage of total revenue has grown and taken a bite out of profits,” said Pablo Alonso, CEO, HotStats.

HA Perspective [by Katherine Doggrell]: The question for investors in the UK since the EU Referendum has tended to be not whether their performance was likely to falter – as has widely been flagged in any case – but whether this matters. In the ever-rising world of UK real estate, it was generally felt that everything would be just tickety boo and the pressures of rising costs could be ignored.

What is causing agents some pause at the moment is a lack of supply coming into the market to feed the demand for Brexit bargains. This demand was further fed last week by Dorsett Hotels commenting that it fancied a few more hotels in the UK, with plans to spend GBP700m in London and Manchester, adding five or six hotels across the two cities. CEO Winnie Chiu said: “Brexit makes it an interesting time to invest but we remain confident in London and other parts of the UK.”

It’s those ‘other parts of the UK’ which are intriguing. Agents tell us that it is no longer accurate to describe London and the regions, it is more nuanced than that. Whereas in certain heady days past a Chinese buyer could be found for the most obscure hotel, as long as it was in the UK, those times appear to have passed. Location is rising in importance again.

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