VA VA VROOM! REDEFINING THE HOTEL SECTOR - HOTELS REPORT 2019 - Living Brick
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VA
VAVA
VA VA
VA
VROOM!
VROOM!
VROOM!
REDEFINING THE HOTEL SECTOR
HOTELS REPORT 2019
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 1
£2.6 BILLION WAS INVESTED
IN UK HOTELS IN H1 2019
LONDON’S OCCUPANCY
RATE HAS RISEN CLOSE
TO 84%
OVER 9,000 HOTEL ROOMS
OPENED IN THE FIRST NINE
MONTHS OF 2019
DUBLIN TOPS LSH’S
ANNUAL HOTEL HOTSPOT
RANKING FOR 2019
2 HOTELS REPORT 2019
Welcome to VA VA VROOM, Lambert Smith
Hampton’s second annual review of the UK
and Ireland hotel market.
This year’s report highlights the recent growth of the aparthotel sector, which
SIMON STEVENS
we see as one of the most exciting parts of the market. New aparthotel formats
Director - Hotels are blurring the lines between serviced apartments and traditional hotels, and
borrowing new ideas from other emerging sectors such as co-working and co-
living.
The aparthotel sector is just one area where hotels are innovating and adapting
to changing consumer demand. This report also takes a look at rooftop bars and
restaurants, which are being used by hotels to attract the Instagram generation.
LSH’s second annual Hotel Hotspot Ranking is unveiled in this report. Dublin
has knocked Edinburgh off the top spot in this year’s ranking, but the top ten
includes a wide geographical spread of cities, demonstrating the diverse range of
opportunities in the sector.
The hotel investment market continues to attract strong demand, albeit
transaction volumes have been increasingly restricted by a lack of available
product. At the time of writing, Brexit uncertainty remains a constraint on
investment activity, but operational markets are proving their ability to weather
the political and economic storms.
There will undoubtedly be challenges over the year ahead, but LSH’s dedicated
team of hotel specialists is perfectly placed to help guide our clients through
these uncertain times. We have added further industry-leading expertise to our
team over the last twelve months and would be delighted to assist you with your
future plans in the hotel sector.
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 1
RESILIENT HOTELS
The hotel market has remained resilient despite growing cost pressures,
supply increases and a backdrop of political uncertainty.
POSITIVE PERFORMANCE to a 45-year low in 2019. The hospitality EVOLVING SECTOR
The UK and Ireland’s hotel markets have industry consistently struggles to fill job A further challenge to the hotel sector in
performed robustly, despite growing vacancies, with ONS data showing that recent years has been the rise of industry
challenges facing the sector. Of the 30 it has the highest rate of vacancies of disruptors including accommodation
cities monitored by LSH’s Hotel Hotspot any employment sector, at four per 100 sharing platforms such as Airbnb,
Ranking, 17 saw occupancy rates improve employee jobs. and online travel agents (OTAs) like
in the 12 months to June 2019, while Brexit could exacerbate the growing staff Booking.com and Expedia. The majority
another 17 recorded increased RevPAR. shortage if it leads to a long-term decline
in the number of EU nationals in the
The UK’s largest hotel market, London, OVERSEAS VISITS TO THE UK (MILLIONS)
UK workforce. The hospitality sector is
has performed above expectations, with
highly reliant on EU workers, with KPMG
annual occupancy rising close to 84%.
estimating that they make up as much as 40
40
Occupancy rates remain well above
a quarter of its workforce.
80% in several other key tourist centres
including Brighton, Edinburgh and York.
BREXIT BACKDROP 38
However, significant falls in occupancy 38
rates have been recorded in Belfast and Wider uncertainty around Brexit and
Glasgow, both of which have seen a large weakening economic growth prospects
volume of new hotel rooms opening over are clouding the outlook for the hotel
sector. Historically, the performance of
36
36
the last 12 months.
the UK hotel market has been strongly
With over 45,000 new rooms scheduled correlated with the broader economy,
to be opened across the UK and Ireland so any economic disruption caused by a 34
34
by 2021, occupancy rates could come disorderly Brexit is likely to be keenly felt
under downward pressure in other cities, by the sector.
especially if demand is dampened by a
weaker macroeconomic environment.
Brexit may also impact the hotel sector 32
32
through its impact on inbound tourism
The most vulnerable markets may be
to the UK. The weakness of the pound
those with the largest active development
provided a short-term boost following the 30
pipelines relative to current supply, 30
2016 referendum, as it helped to attract
including Cambridge, Manchester
increased numbers of international
and Oxford.
tourists to the UK. However, this effect
has since faded, with inbound tourism 28
28
RISING COSTS
falling by 3% in 2018. Countering the
While occupancy and RevPAR trends have currency impact, there is concern that
remained healthy, these indicators do tourism from EU countries is being 26
26
not tell the full story of hotel operators’ affected by more negative sentiment
recent performance. Profits have been towards the UK.
chipped by higher costs, particularly
payroll expenses. These have risen due to A Brexit effect has also been felt in 24
24
a tightening labour market, compounded Ireland, with the weak pound making
by increases to the National Minimum it a more expensive destination for UK
Wage, the National Living Wage and to tourists. Increased tourism from the rest
22
22
employers’ minimum contributions to of the world has, to date, made up for a
workplace pensions. decline in visitor numbers from the UK.
However, a longer-term impact could be
Hotel operators have been faced by a felt if a hard border became a deterrent 20
20
contraction in the availability of skilled
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
to tourists wanting to travel between
2019F
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
labour, with UK unemployment dropping Northern Ireland and the Republic.
Source: VisitBritain
2 HOTELS REPORT 2019
of online hotel bookings are now made keep up with the demands of modern small but technology-rich rooms;
through OTAs, who typically charge consumers. Smart technologies and and aparthotels, which have grown in
commission of 15%, but major hotel artificial intelligence, for example, are popularity as a flexible alternative to
brands are now attempting to fight back increasingly being used to enhance hotel conventional hotels.
by offering more sophisticated online experiences.
The hotel sector has remained resilient to
platforms to encourage direct bookings.
These technologies are complementing a range of challenges in recent years. Its
The battle with the OTAs is just one area the evolution of new room formats. ability to adapt and innovate will continue
where hotel operators are embracing Growth segments within the market to be tested by changing consumer
technological innovations in order to include compact hotels, offering demand.
TOP 5
5 TOP 5 Y RATES RevPAR GROWTH RATES
TOPPANCY AVERA G E DAIL
U
OCC ATES £152
R O N
O N D )
83.9 L £128(€145
%
DUB L IN £115
DON LONDON 6.1%
%
83.4
LON
LIN 83.1
% B AT H £104 NOTTINGHAM 5.7%
DUB F O R D SOUTHAMPTON 4.9%
K 82.5
% OX £103
YOR GH RGH PORTSMOUTH
E D IN B U
3.7%
B UR 82 4
. %
EDIN BIRMINGHAM 3.5%
TER
EXE
Source: STR (data for the 12 months to June 2019)
JOB VACANCIES PER 100 EMPLOYEE JOBS HOTEL OCCUPANCY RATES (%)
4.5 90
4.0 80
3.5 70
3.0 60
2.5 50
2.0 40
1.5 30
1.0 20
0.5 10
0.0 0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Hotels & Restaurants All Sectors London UK regions
Source: ONS Source: STR/PwC forecasts
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 3
HOTEL HOTSPOTS
Dublin tops LSH’s Hotel Hotspot Ranking for 2019.
The ranking assesses the strength of 30 key markets in the UK and Ireland as locations for hotel investment and development.
It combines data on eight key indicators, including the size of a city’s hospitality economy; employment growth in the sector;
occupancy rates; ADR; 3-year RevPAR growth rates; the size of the development pipeline relative to current supply; tourist
arrivals per hotel room; and hotel build costs.
Last year’s top two – Edinburgh and Dublin –swap places at the top of this year’s ranking, with the Irish capital taking the crown
for 2019. Meanwhile, York, Cambridge, Birmingham and Nottingham are the biggest movers up the ranking.
1 DUBLIN 2 EDINBURGH
Dublin moves up one place to take the top spot Despite dropping from the top spot it held in
in this year’s ranking. The hotel market has last year’s ranking, the Scottish capital’s hotel
thrived on the back of a strong Irish economy market continues to perform strongly, scoring
and record numbers of international tourists. highly across nearly all key indicators. The city
RevPAR has risen by over 14% in the last three has one of the largest tourist economies in the
years, and occupancy rates have remained UK and it attracts more international visitors
very high despite a steady stream of new than any other city outside London.
hotels entering the market.
3 LONDON 4 YORK
London is the second most visited city in York is this year’s most improved city, moving
the world and by far the UK’s biggest hotel seven places up the ranking. The occupancy
market. It consistently records room rates rate has risen to 83%, one of the highest levels
well in excess of any other UK city. RevPAR has in the UK. The historic city is a perennially
grown solidly over the last twelve months, and popular tourist destination, welcoming
London only misses out on a higher place in nearly seven million visitors a year. Tourism
this year’s ranking due to its high build costs. contributes £564 million to the economy and
supports 19,000 jobs.
5 CAMBRIDGE 6 LIVERPOOL
Cambridge takes a high place in this year’s Liverpool enjoys an international reputation
ranking on the back of a growing tourism as a tourist destination, due to its sporting,
sector, high average daily rates and strong musical and maritime heritage. It is the
RevPAR growth. It has a relatively small sixth most visited city in the UK for overseas
number of hotel rooms for a city that visitors and its hotel industry has performed
receives more than five million visitors well in recent years. RevPAR has increased
each year, but a sizeable development by 13% over the last three years, one of the
pipeline could ease supply pressures over fastest rates of growth in the UK.
the next few years.
7 BRIGHTON 8 BELFAST
Brighton was named as the UK’s most Belfast has slipped five places in the ranking,
successful seaside city by a House of Lords following a surge in new hotel openings in
report earlier this year. Its hotel market has 2018. This has caused a moderation in the city’s
performed strongly in recent times, with high previously high occupancy rates, but the market
occupancy rates and strong RevPAR growth. should now stabilise as there is only a modest
Despite this, the development pipeline for development pipeline for the next two years. The
the next two years is very thin, which should continued growth of Northern Ireland’s tourism
support continued high occupancy. industry should also boost activity.
44 HOTELS
HOTELS REPORT
REPORT 2019
2019
LSH HOTEL HOTSPOT RANKING 2019
1 +1 DUBLIN 76.25
2 -1 EDINBURGH 75.00
3 +1 LONDON 75.00
4 +7 YORK 68.75
5 +4 CAMBRIDGE 67.50
6 = LIVERPOOL 63.75
7 +1 BRIGHTON 62.50
8 -5 BELFAST 62.50
9 -4 OXFORD 61.25
10 +2 BATH 61.25
11 +5 BIRMINGHAM 60.00
12 +2 EXETER 58.75
13 +2 BRISTOL 57.50
14 +5 NOTTINGHAM 56.25
15 -5 CARDIFF 56.25
16 +1 NORWICH 55.00
17 -4 MANCHESTER 55.00
18 -11 GLASGOW 52.50
19 +1 BOURNEMOUTH 50.00
20 +3 NEWCASTLE 50.00
21 = LEEDS 50.00
22 +3 PLYMOUTH 47.50
23 +4 SOUTHAMPTON 47.50
24 -2 SHEFFIELD 46.25
25 -1 READING 43.75
26 = COVENTRY 42.50
27 +2 LEICESTER 41.25
28 -10 CHESTER 41.25
29 +1 ABERDEEN 37.50
30 -2 PORTSMOUTH 32.50
Hospitality GVA per capita Hospitality employment growth rates Occupancy rates
Average daily rates RevPAR 3-year growth Active pipeline/ supply ratio
Tourist arrivals/ supply ratio Hotel build costs
Total scores are out of 100
Sources: STR, AM:PM, ONS, VisitBritain, Experian, BCIS, NISRA, CSO, Fáilte Ireland, LSH Research
SOURCE
SOURCE
FOR
FOR
ALL
ALL
DATA
DATA
UNLESS
UNLESS
STATED:
STATED:
LSH
LSH
RESEARCH
RESEARCH ©©
LAMBERT
LAMBERT
SMITH
SMITH
HAMPTON
HAMPTON 55A CLASS APART
New aparthotel concepts are driving the growth
of the wider serviced apartment sector.
GROWTH SECTOR A distinction can be made between
Serviced apartments and aparthotels more traditional serviced apartments,
are a small but growing part of the which are self-contained apartments
accommodation market. The sector in residential buildings with limited
comprises approximately 25,000 units in staff or services on-site; and
the UK and Ireland, making it about 3% aparthotels, offering a broader
the size of the conventional hotel market. range of hotel-like services such as
restaurants, gyms and a 24-hour
However, with approximately 6,000 new reception.
units scheduled to open by 2021, or about
13% of the total active pipeline, the sector However, newer formats are
is one of the fastest-growing parts of the blurring the lines between serviced
overall accommodation market. apartments, aparthotels and
traditional hotels. Distinctions between
BLURRED LINES property sectors have further been
challenged by innovative aparthotel
A wide range of properties can concepts that have introduced
come under the umbrella of elements similar to WeWork‑style
serviced apartments. However, the co‑working spaces.
accommodation provided usually differs
from conventional hotel rooms by offering
more space, with cooking facilities and
separate living and sleeping areas.
6 HOTELS REPORT 2019NATIVE BANKSIDE, LONDON
BROADENING DEMAND MAJOR PLAYERS ACTIVE DUAL BRANDING OPPORTUNITIES
Serviced apartments have historically A range of operators are active in the While operating models vary, many
been targeted primarily at single sector, including major hotel groups, serviced apartments are less labour
business travellers on long stays, with serviced apartment specialists and intensive than conventional hotels, which
the sector sometimes being referred independent operators. adds to their appeal to hotel groups facing
to as ‘extended-stay’. However, this increasing cost pressures.
Brands operated by the leading hotel
term is something of a misnomer when
groups include IHG’s Staybridge Suites, Serviced apartments can also provide the
used to describe aparthotels, which are
which has over 1,000 units across eight major hotel groups with dual-branding
increasingly popular for medium and
UK properties, and Accor’s Adagio opportunities. A recently opened IHG
short-term stays.
aparthotel brand, which has nearly 500 property at Heathrow Airport, for example,
Aparthotels are benefitting from growing units in four properties. The latter is has Staybridge Suites and a Holiday Inn in
demand for flexible accommodation, one of the fastest growing brands in the the same building.
stemming from a broad range of sector globally, and its UK presence is
Similarly, upcoming developments include
travellers. Their appeal is also boosted set to more than double over the next few
a Marriott scheme in Slough featuring a
by the greater privacy that they offer, years on the back of a large development
Residence Inn alongside a Moxy hotel; and
and the potential cost savings from pipeline.
an Accor project in Leicester comprising a
cooking one’s own meals. While smaller
Many of the major hotel groups have only Novotel and an Adagio aparthotel.
apartments will suit the single traveller,
dipped their toes into the UK serviced
larger suites can provide enough space to The dual-branded model allows the
apartment sector. Marriott’s Residence
accommodate families on holidays. hotels to achieve operational efficiencies
Inn brand, for example, has four UK
by sharing facilities such as gyms and
properties, compared with over 800
restaurants, while attracting a more
in the US. The size of its US chain is
diverse customer base than a single-
indicative of the relative maturity of the
branded property.
extended stay market in North America.
The sector accounts for about 9% of
INNOVATIVE OPERATORS
US lodging supply, which suggests that
there is considerable room for growth Fast-growing specialist operators include
in the comparatively underdeveloped the Irish-based Staycity, which has grown
UK market. a network of 15 properties in the UK and
Ireland. Its development pipeline is the
largest in the UK aparthotel sector, and
includes several projects that will be
opened under its premium Wilde brand.
SELECTED OPENINGS
2018-19 DUE IN 2020
• Native Bankside, London • Adagio, Leicester Waterfront
(75 rooms) (95 rooms)
• Quest, Liverpool City Centre • Bermonds Locke, London
(100 rooms) (143 rooms)
• Staybridge Suites, London Heathrow • Ormond Locke, Dublin
Bath Road (190 rooms) (160 rooms)
• Whitworth Locke, Manchester • Roomzzz, Liverpool
(160 rooms) (105 rooms)
• Wilde Aparthotels Covent Garden, • Staycity Moss Street, Dublin
London (106 rooms) (202 rooms)
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 7NATIVE BANKSIDE, LONDON
In common with a number of emerging WORKING SPACES A large range of communal spaces are
brands in the sector, the Wilde brand As well as putting an emphasis on design, also provided for work or social activity,
places an emphasis on luxury and design. many newer aparthotels incorporate creating an environment that shares
This is also true of Native, which has co-working areas. The recently opened as much in common with an Airbnb or
developed a range of boutique serviced Whitworth Locke in Manchester, for WeWork property as a conventional hotel.
apartments and stylish aparthotels, example, offers over 80 workspaces for By providing flexible living, working and
several of which are housed in unusual residents and guests. social spaces, aparthotels may thus be
period buildings such as refurbished
The concept of the aparthotel as a well positioned to benefit from changing
warehouses.
home‑office hybrid has been taken to a consumer expectations in the ‘sharing
Other design-led brands include new level by Amsterdam’s Zoku, which economy’. While the rise of the Airbnb
Roomzzz and Locke. The latter is a has been widely lauded as one of the market is sometimes viewed as a threat to
boutique aparthotel brand launched most innovative hotels in the world. Its more traditional accommodation sectors,
by SACO, one of the UK’s largest ‘micro-loft’ apartments are centred not it may actually benefit aparthotels
operators of more conventional serviced on a bed, but on a four-person table by making consumers more open to
apartments. that can be used for working or eating. alternatives to conventional hotels.
ROOMS OPENED IN SERVICED APARTMENTS & APARTHOTELS
2,000 12.5%
1,600 10.0%
1,200 7.5%
800 5.0%
400 2.5%
0 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019¹
Number of rooms (LHS) % of total hotel & apartment openings (RHS)
¹Includes projects due to open by end-2019
Source: AM:PM/LSH Research
8 HOTELS REPORT 2019SUPPLY BY REGION (ROOMS, %) ACTIVE PIPELINE BY REGION (ROOMS, %)
2 1 1 4
1
2 2 4
3 10
3
3
16
36
4
47
7
6
1
12 2
3
10
13 16
Source: AM:PM/LSH Research
NEW MARKETS currently has just under 600 serviced products, serviced apartments and
As aparthotels gain popularity, they are apartment and aparthotel units, but aparthotels will continue to innovate and
being rolled out to a growing range of Staycity is aiming to operate 1,500 rooms grow. The sector will be melting pot for
UK and Irish markets. Greater London in the city by 2021. new ideas; borrowing from alternative
has historically been the main focus for concepts such as co-living and co-
Other key growth markets include
operators, with approximately 47% of working to create new hybrids.
Manchester, Glasgow and Liverpool.
the current supply. However, London The last of these will shortly be home to Aparthotels will become increasingly
has a smaller share of the development the first UK aparthotel to be opened by mainstream, as consumers get more
pipeline, at 36%, indicating that other Australia’s Quest brand, which aims to familiar with them, and as operators
major cities are increasingly in the sights have 8-10 UK properties opened by 2023. and investors recognise their strengths.
of operators. Well-conceived and located products
Dublin has the next largest pipeline after
MEETING FUTURE DEMAND will be in a strong position to meet
London, driven primarily by Staycity’s With new brands being launched and travellers’ growing appetite for flexible
expansion plans. The Irish capital established operators reinventing their and affordable accommodation.
NATIVE INSIGHT
LSH spoke to Native, one of the UK’s buildings and at the core of what we do is exceptional quality
of service offered to all of our guests.
most exciting aparthotel operators, It is also imperative to each of our schemes that the buildings
about the growth of its brand. are unique, offering a boutique collection of period and
modern suites in central neighbourhoods across the UK’s
Native is the largest aparthotel operator in the UK major cities. Whilst we delight in refurbishing historic
and has over 20 buildings across the country offering buildings, such as Native Bankside which was acquired as
over 1,000 aparthotel units. We also recently launched a dilapidated 18th century tea warehouse, we’re equally
Native Manchester, at the Ducie Street Warehouse in comfortable working with new build schemes.
Manchester, the largest aparthotel in the UK. LSH’s research shows that serviced apartments still only
We are experts in our field and increasingly work with account for about 3% of total hospitality accommodation in
owners, developers and architects at the concept stage the UK, compared with much higher rates in the USA and
to help shape buildings that suit the requirements of our Asia, meaning the sector is seen as ripe for further growth.
corporate and leisure guests whilst also driving optimal We have ambitious expansion plans for the brand and are on
value for owners. Consistency in our brand comes in the track to open an additional seven aparthotels over the next
quality and range of amenity offered within each of our four years.”
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 9UP ON THE ROOF
Hotel rooftops can provide uniquely attractive sites
for destination bars and restaurants.
CREATING A BUZZ and drink offerings and spectacular views ON TOP OF THE WORLD
Rooftop bars and restaurants are not a across the city. Examples include the Practical aspects to be considered
new phenomenon, but they are enjoying Radio Rooftop Bar, above the ME Hotel on when planning a rooftop bar include the
a renaissance in the modern ‘experience the Strand; Aviary above the Montcalm configuration of ground floor access,
economy’. Rooftop venues offering Hotel at Finsbury Square; and the Jin Bo signage and customer lifts. It may be
stunning city views are ideally placed Law Skybar at the Dorsett City Hotel in important to minimise disruption and
to provide the unique experiences and Aldgate. noise to guests staying at the hotel, so
‘Instagrammable’ locations sought by separate access to the rooftop venue
consumers.
UNIQUE DESTINATIONS could be desirable.
However, London is not the sole focus for
A successful rooftop bar can transform rooftop development, and hotel operators An appropriate mix of outdoor and
the identity of a hotel, and become a are increasingly exploring opportunities covered space will be needed, to ensure
visitor destination in its own right. By in regional UK cities. New openings in that the venue can be used in all seasons.
attracting footfall and creating a buzz recent years include the Varsity Roof As a general rule, the higher the roof, the
around the hotel, it can benefit the Terrace at the Varsity Hotel in Cambridge; more indoor space required.
entirety of the hotel’s business. the Level8IGHT Sky Bar at the Hilton It is thus important that rooftop bars
Bournemouth; and the Radisson RED Sky and restaurants are well thought-out
CITY VIEWS Bar in Glasgow. and tailored to specific buildings and
Locations in major cities with iconic locations. With the right planning and
skylines are most obviously suited LSH has also recently advised an IHG
brand on hotel projects in Salisbury and execution, unique venues with huge
to rooftop bars and restaurants. customer appeal can be created. In a
Unsurprisingly, London is the UK city Exeter that will feature rooftop bars.
Touristic cathedral cites such as these challenging market for high street food
which offers the largest array of rooftop and beverage operations, rooftop bars
venues. have huge potential for rooftop bars,
especially when hotel sites are well- and restaurants can be elevated – both
Some of London’s trendiest destinations located with roofs that provide outlooks literally and figuratively – from their
are rooftop bars offering bespoke food over city landmarks. competition.
HOTEL INDIGO LONDON, 1 LEICESTER SQUARE - ROOFTOP BAR AND RESTAURANT
10 HOTELS REPORT 2019DORSETT CITY LONDON – JIN BO LAW SKYBAR
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 11IN SHORT SUPPLY
Hotel investment activity is being held back by Brexit-related uncertainty
and a lack of available product.
INVESTMENT SLOWS Queensgate Investments, a partnership However, the absence of major deals
AFTER STRONG Q1 backed by one of Hong Kong’s wealthiest since Q1 is testament to increased
families, acquire four Grange Hotels in caution on both the buyer and seller
A total of £2.6bn was invested in UK
central London for approximately £1bn. side. Uncertainty over Brexit has seen
hotels during H1 2019. While this was
The assets have since been re-branded investors become more selective on
22% down on the same period of 2018,
as Leonardo or Jurys Inn hotels. assets, and a number of deals have
it was still 36% up on the ten-year H1
either been put on hold or are taking a
average. Other notable portfolio deals in Q1
long time to complete.
saw the 26-property Hallmark Hotels
However, investment activity was heavily
portfolio being acquired by an Israeli Many potential vendors are under no
front-loaded in Q1, with several large
investment fund for £250m, while the immediate pressure to sell assets,
portfolios changing hands in the early
Israeli-backed Vivion Capital Partners and are choosing to hold on to their
part of the year. Subsequently, volume
purchased nine Hilton Hotels for £246m. properties while they monitor political
slowed significantly in Q2, and provisional
and macroeconomic developments. This
data shows a continuation of this trend LACK OF SUPPLY has created a lack of available supply,
in Q3. As a result, investment volume for
the whole year is expected to fall some
LIMITING DEALS with few major portfolios coming to the
Q1’s major portfolio deals demonstrate market, frustrating investors seeking to
way short of 2018’s total of £5.6bn.
that international buyers, particularly acquire hotels.
HOTELS RETAIN from the Middle East and Asia, continue
LIVING IT UP
INTERNATIONAL APPEAL to be attracted to opportunities in the UK
hotel market. London retains specific Notwithstanding the current supply
The year got off to a flying start with shortage, hotel investments are in
global appeal and the relative weakness
the transaction of three £200m-plus a strong position to benefit from the
of pound remains in the favour of
portfolios in Q1. The largest of these saw current vogue for the ‘living’ sectors,
overseas buyers.
UK HOTEL INVESTMENT VOLUME (£BN)
8
7
6
5
4
3
2
1
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
Portfolios Single assets
Source: LSH Research, Property Data, PMA
12 HOTELS REPORT 2019HILTON PUCKRUP HALL, TEWKESBURY.
PART OF THE NINE-PROPERTY PORTFOLIO ACQUIRED BY VIVION CAPITAL PARTNERS FOR £246M IN Q1 2019.
which also include PRS, student the De Vere Beaumont in Old Windsor. figure of 3.2%. However, as with all
accommodation and healthcare. Reflecting their low-risk, ultra-long term property sectors, returns have fallen
nature, yields of 2.5% or below continue over the last year due to the weakening
Taken together, the living sectors have
to be achieved for hotel ground leases. economic backdrop.
become the most active part of the
investment market in 2019, on the back Contrastingly, investors in search of Yields across the hotel sector have
of growing demand for assets providing higher yields have shown a greater remained broadly stable in 2019, after
secure, long-term income. Many hotel willingness to consider well-structured seeing moderate compression in recent
assets, particularly those with long-term deals for operated or managed hotels. years. It is possible that there will be
fixed leases, are well-suited to this type Such assets can offer significantly higher some softening of yields in the short-
of demand. yields than leased hotels, compensating to-medium term, with sellers needing
for a degree of operational risk. to adjust prices closer to buyers’
Hotel ground leases have also gained
expectations.
popularity as a source of long-term
REPRICING POSSIBLE
income. Alpha Real Capital, for example, However, the strength of market activity
has been on a buying spree, acquiring MSCI data shows that the hotel sector over the next twelve months is likely to be
ground rents for three of the London has outperformed the wider UK property dictated by wider political and economic
hotels purchased by Queensgate market in recent years. In the 12 months developments. A smooth resolution to
Investments earlier in the year, as well to June 2019, it delivered a total return Brexit could yet boost investor sentiment
as agreeing a £40m ground rent deal at of 7.4%, compared with the all-property and release pent-up activity.
HOTEL YIELD GUIDE
Q2 2019 SENTIMENT
BUDGET 3.50%
INSTITUTIONAL MID-MARKET 3.50%
LEASE UPSCALE 3.50%
CENTRAL LUXURY 3.75%
LONDON BUDGET 5.00%
OPERATIONAL MID-MARKET 5.30%
HOTELS UPSCALE 5.20%
LUXURY 3.90%
BUDGET 4.50%-5.50%
MID-MARKET (UNBRANDED) 10%-12%
INSTITUTIONAL
MID-MARKET 4.75%-5.00%
LEASE
UPSCALE 5.00%
MAJOR LUXURY 5.00%
CITIES BUDGET 7.00%
MID-MARKET (UNBRANDED) 10%-12%
OPERATIONAL
MID-MARKET 7.00%-7.50%
HOTELS
UPSCALE 6.50%-7.00%
LUXURY 6.25%
Source: LSH Research
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 13HOTEL TOTAL RETURNS (%, 12 MONTHS)
20
15
10
5
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015 2016 2017 2018 2019
Hotels All property Source: MSCI
EXPERT VIEW
We have continued to see strong appetite for operational Large volumes of new hotel rooms will continue to be
hotel investments from funds either looking to break into delivered on the back of this strong interest in the UK hotel
the hotel sector or add to their existing hotel portfolios. sector and record levels of institutional investment for hotel
Buyers are taking advantage of the attractive yields being development sites. Operators will also continue their efforts
achieved in the hotel market when compared with more to build scale, predominantly by way of brand expansion.
traditional investment sectors. The impact of the recent surge in supply has yet to be fully
seen, but with costs increasing and the active development
Uncertainty surrounding Brexit has seen deals taking
pipeline remaining large, operators may see profitability
longer to complete or, in some cases, being put on hold.
impacted, particularly in locations away from the main
However, overseas investors have sought to benefit
tourist and corporate hubs.”
from the weakness of the pound. Notable deals in 2019
have included the acquisition of the Grange Portfolio
by Queensgate Investments, backed by one of Hong
Kong’s richest families, and the purchase of the Crowne
HUGH ANDERSON
Plaza Kensington by a Singaporean consortium led by Director – Hotels
Heeton Holdings. Lambert Smith
Hampton
14 HOTELS REPORT 2019JURYS INN LONDON HOLBORN (FORMERLY THE GRANGE).
PART OF THE £1BN PORTFOLIO ACQUIRED BY QUEENSGATE INVESTMENTS IN Q1 2019.
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 15ROOMS
FOR GROWTH
The hotel market remains in the midst
of a development boom.
HOTEL ROOMS
UNDER CONSTRUCTION
LONDON DOMINATES NEW SUPPLY
Just over 9,000 new hotel rooms were opened in the UK and
Ireland during the first three quarters of 2019, about 10% down >10,000
on the same period of 2018. New openings this year are likely 5,000-10,000
to fall a little short of 2018’s total of about 16,000 new rooms, 3,000-5,000
but 2019 is nonetheless on course to be one of the most active SCOTLAND
2,000-3,000
years in the last decade.
1,000-2,000
In line with recent trends, Greater London accounted for the
largest share of new openings in Q1-Q3, with 32% of the new roomsHOTEL ROOM OPENINGS BY REGION, HOTEL ROOM OPENINGS BY CLASS,
Q1-Q3 2019 (%) Q1-Q3 2019 (%)
2 2
2
2 Greater London
3
Scotland
3
South East 29
4 36
Republic of Ireland
4 North West
Budget
32 South West
Midscale
7 Eastern
Upscale/Luxury
West Midlands
Northern Ireland
7 Wales
East Midlands
19 North East
12
Yorkshire & The Humber 35
Source: AM:PM/LSH Research
OUTLOOK &
OPPORTUNITIES
The hotel market’s resilience will major hotel portfolios coming to the market should still find
buyers, especially Asian and Middle Eastern investors.
continue to be tested in 2020. However, inertia on the part of potential vendors is likely
to hold back investment volumes, at least until there is a
DEVELOPMENT TO CONTINUE APACE clear outcome to Brexit. A relatively smooth resolution to
Hotel development is set to remain at an elevated level into Brexit has the potential to kick-start investment activity,
2020, continuing the trend of recent years. To date, new albeit it could also cause the pound to strengthen, eroding
supply has been well absorbed by most UK markets, with a the currency advantage currently enjoyed by international
negative impact on occupancy only noticeable in a handful investors.
of cities that have experienced specific spikes in hotel NEW ROOMS, NEW OPPORTUNITIES
openings.
Despite recent challenges and uncertainties, the hotel sector
However, hotels completed over the next 12 months may be remains a robust and vibrant industry. Aparthotels are just
entering a challenging marketplace. A combination of Brexit one area where the product offered to consumers is being
uncertainty and weakening global economic prospects evolved to meet changing demand.
could impact both domestic and international tourist
Compact hotels, offering technology-rich rooms that
demand. New hotels that are well-located with strongly-
make intelligent use of limited space, will continue to
defined brands will be best placed to cope with any market
be a growth area. New hybrid formats, combining living
uncertainty.
and workspaces, are also likely to be explored by a rising
BREXIT WILL SHAPE INVESTMENT number of operators.
Underlying demand for hotel investments will remain As the hotel operating market evolves©in response
LAMBERT to shifting
SMITH HAMPTON 17
strong, with the sector remaining particularly appealing to consumer expectations, new opportunities will also arise for
investors seeking secure, long-term income streams. Any agile investors and developers.
SOURCE FOR ALL DATA UNLESS STATED: LSH RESEARCH © LAMBERT SMITH HAMPTON 17HOTEL AGENCY
SIMON STEVENS DAVID CREAMORE
Director Director
+44 (0)20 7198 2155 +44 (0)20 7198 2231
sstevens@lsh.co.uk dcreamore@lsh.co.uk
HUGH ANDERSON MARTIN DAVIS
Director Director
+44 (0)161 242 7098 +44 (0)161 242 7016
handerson@lsh.co.uk mdavis@lsh.co.uk
CHARLES JONES NEIL MILLIGAN
Associate Director Associate Director
+44 (0)121 237 2365 +44 (0)141 226 6777
cmjones@lsh.co.uk nmilligan@lsh.co.uk
DANIEL WHITTAKER
Associate Director
+44 (0)161 242 8010
dwhittaker@lsh.co.uk
HOTEL VALUATION
KEN HOGG SIMON JONES
Director Director
+44 (0)20 7198 2283 +44 (0)20 7198 2188
khogg@lsh.co.uk scjones@lsh.co.uk
IAIN CROMPTON SIMON REID
Director Director
+44 (0)161 228 6411 +44 (0)113 887 6764
icrompton@lsh.co.uk sreid@lsh.co.uk
NEIL MILLIGAN MARK PEEL
Associate Director Associate Director
+44 (0)141 226 6777 +44 (0)191 338 8321
nmilligan@lsh.co.uk mpeel@lsh.co.uk
CAPITAL MARKETS BUSINESS RATING
SIMON EDDY BOB HANCOCK
Director Director
+44 (0)20 3824 4729 +44 (0)20 7198 2152
seddy@lsh.co.uk rhancock@lsh.co.uk
BUILDING PLANNING, DEVELOPMENT
CONSULTANCY & REGENERATION
ROBERT BURKE VINCENT GABBE
Director Director
+44 (0)20 3824 4726 +44 (0)20 7198 2253
rburke@lsh.co.uk vgabbe@lsh.co.uk
RESEARCH
OLIVER DU SAUTOY MATTHEW COLBOURNE
Director Associate Director
+44 (0)20 7198 2193 +44 (0)20 7198 2268
odusautoy@lsh.co.uk mcolbourne@lsh.co.uk
#LSHKNOWS
HOTELS
© Lambert Smith Hampton
Details of Lambert Smith Hampton can be viewed on our website www.lsh.co.uk
This document is for general informative purposes only. The information in it is believed to be correct, but no express or implied representation or warranty is made by Lambert Smith Hampton as to its accuracy
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