Grosvenor property group has put the Beaumont hotel on the market, reportedly looking for up to GBP120m.
The move is hoping to tap into residual optimism in the London hotel market, despite faltering performance.
The site is managed by Corbin & King, which relinquished the leasehold of the hotel in 2016, two years after it opened, having run into financial issues thought to relate to the opening costs of the luxury site, which features an Antony Gormley sculpture in one of its suites.
It is not known whether Corbin & King will retain the hotel. The group is currently looking to expansion after Minor acquired a majority stake for GBP58m at the end of last year, acquiring a stake previously held by Graphite Capital.
Dillip Rajakarier, CEO, Minor Hotels, said at the time: “We at Minor Hotels are thrilled to be entering the UK market and are proud to partner with such a respected industry leader. Our strategic joint venture will build upon Minor Hotels’ history of operating signature restaurants within our hotels and in third-party locations. We look forward to working with Jeremy and Chris to expand the Corbin & King portfolio in the UK and key international markets.”
Preliminary June data for London, from STR described higher occupancy but lower rates, with revpar increasing by 1.6%. June was London’s first month with a year-over-year occupancy increase since May 2017, but was also the fourth month in a row with an ADR decrease after 16 straight positive months in the metric
STR analysts noted that market demand was boosted by various concerts throughout the month, with favourable weather conditions also helping hotel performance.
Although rates were faltering, confidence has remained high in the capital, particularly in the luxury end of the market. In June Abil Group, which owns four luxury hotels in India, acquired a site in Trafalgar Square from BlackRock UK Property Fund for close to GBP90m, with plans to redevelop the property into a five-star hotel with 210 to 230 rooms, with an additional investment of over GBP80m.
Amit Bhosale, managing director, said: “London as a destination ranks in the top three choices when one is considering global expansion. This is an exciting opportunity for us as Trafalgar Square is a globally recognised location and has the potential to build a world-class luxury hotel.”
Gary Witham, director in the hotels team at Savills, which acted for Abil, said: “The London hotel market continues to attract a wide range of overseas investors with the city providing attractive long term income prospects. As the first purchase for our client, 5 Strand makes an excellent choice providing the opportunity to create a leading purpose built hotel in a tourist location that is recognisable to a global audience.”
Savills reported that that overseas investment into hotels in London totalled GBP1.06bn last year, an increase of 17.7% on 2016. Institutional capital investment into hotels also grew 6.8% to GBP370.7m in 2017, the highest level of investment from this buyer type for over 10 years, according to the firm.
According to CBRE Hotels, the existing London five-star supply was 18,541 keys (106 hotels, with the five-star confirmed pipeline (final planning, in construction) of 1,621 keys, or 18 projects. This would result in a 8.7% increase in London’s five-star room supply in the next three years, not including 5 Strand.
In the Westminster pipeline, there were 10 five-star confirmed developments, of 976 keys, which would result in a 9.4% increase in Westminster’s five-star room supply in the next three years, not including 5 Strand.
Joe Stather, associate director, CBRE Hotels, told Hotel Analyst that London luxury hotel performance was experiencing some headwinds, with revpar down 0.4% year-on-year for year-to-date April 2018.
He said: “However, the ‘London Luxury’ average occupancy remains at circa 80% on a 12-month moving average, which is incredibly strong relative to other capital cities and would suggest that there is room for additional high-end hotel supply in the city.”
For those existing hotels, the market is likely to be strong. The Times suggested that a number of overseas investors have shown an interest, with the Barclay brothers also mooted for a bid.
HA Perspective [by Katherine Doggrell]: That the other shoe is dropping in London is not in doubt. John Webber, head of business rates, Colliers International, told us that, with the wider economy showing the strain in the capital, performance was likely to be hit. This strain was, he felt, also likely to mean growth in the sharing economy, as more home owners looked to bolster their income.
Not something which is likely to bother the luxury end of the market as, although the increase in hotel supply is expected to mean a softening of performance, the allure of owning a luxury London hotel remains strong and a multiple award winner like the Beaumont is unlikely to be on the market for long.
Whether Corbin & King remains at the property will come down in part to the aspirations of new shareholder Minor International, now also big in NH Hotels. The global operators, in addition to the global investors, are likely to be sniffing around the property, which would slot very pleasingly into one of the many luxury soft brands. Now that Corbin & King can also present an expanded distribution case, it is that much more likely to retain it.
Additional comment [by Andrew Sangster]: It is worth contrasting the performance of Corbin & King with another celebrity restaurateur outfit, D&D London. Back in 2006, D&D, together with Blackstone, sold what is now the Andaz in Liverpool Street.
The former Great Eastern was a huge success for D&D and caused them to think about becoming hotel property developers rather than restaurateurs. But reality dawned in the form of the 2008 recession and their hotel ambitions were limited to running the South Place instead.
What the experiences of these restaurateurs shows is that developing hotels is a very different business to restaurants, despite the superficial similarity. There can be little doubt that hotels have moved towards the higher fashion and celebrity content of restaurants but the importance of the underlying real estate investment still dominates.
If Minor can blend the best bits of both industry segments it will be onto a winner. Of course, it also risks extracting the worst and combining these.