London hotel values make a comeback

Good trading conditions are driving up the value of London hotels, says Hospitality Valuation Services (HVS). London's five-star hotels are now worth more than in 1990 and three- and four-star properties are rapidly rising in value, it says.

The capital values of London hotels rose 13% on average during 1994 with three-star hotels rising by 14.4%, four-star by 13.9% and five-star by 12%.

HVS bases its figures on a hotel valuation index which in 1994 used a sample of 46 properties across the three grades. The index calculates a value on a discounted cashflow basis using forecasted profits.

The table shows that it was three-star London properties that suffered the most during the recession, dropping to 76.2% of their 1990 value. Five-star property values have not only proved more resilient but they have also recovered the fastest.

Across all three grades of accommodation, rising bedroom occupancy and improving average achieved room rates are allowing values to rise.

Three-star hotels put on the strongest occupancy and room rate growth, reaching 86.9% occupancy and room rate of £47.10.

But it was still five-star hotels which had the best increase in revenue per available room during 1994, increasing by 15.1% compared with a 14.5% rise for three-star and 13.4% for four-star hotels.

The five-star market is so healthy - occupancy of 71.4% and average room rate of £155.50 - because of barriers to entry into the London market, which has meant few additions in the past 20 years. It is also rare for existing hotels to be put up for sale, says HVS.

There is an increased stock of four-star hotels thanks to the upgrading of three-star properties. Occupancy has reached 83.7% with average rates at £73.10. The strong occupancy means significant increases in rates should be possible.

HVS predicts the increases in capital values will continue in 1995 but at a more moderate pace than in 1994.