London remains favourite with hotel investors

04 November 2015 by
London remains favourite with hotel investors

London has again been voted the top pick for hotel investment in Europe, according to a survey just released.

Almost a third of respondents ranked London as the number one investment destination in Europe, despite more than half of respondents regarding the city as ‘overvalued'.

More than 80 hospitality industry leaders, including owners, developers, lenders and investors, responded to the survey ahead of the annual Deloitte European Hotel Investment Conference taking place at London's Dorchester hotel yesterday and today.

"Although some investors see the city as overvalued, London's position as a proven destination for both business and leisure remains unparalleled," said Nick van Marken, global head of hospitality at Deloitte. He cited investor appetite and London's status as a safe haven as further reasons capital flows are likely to remain strong. It is the second year running that London has taken the top slot for investment confidence.

In joint second place, Madrid and Barcelona each took 27% of the vote for investment confidence, while Amsterdam was hot on their heels at 26%. Paris, which came second last year, slipped to fifth place.

China and North America were viewed as the primary source of investment over the next 12 months, driven largely by a weaker euro, attractive yields, favourable interest rates and economic recovery. "Investment into Europe continues at pace, with the UK leading the way in terms of volume, and private equity remains very active," noted van Marken. He added that investors are now focusing attention on southern Europe, particularly Spain, and that the European resort market is seeing a lot of activity.

Despite the optimism, senior hospitality figures highlighted issues facing the industry in 2016. More than half identified geopolitical instability in parts of Europe as a key risk, and the same proportion were concerned by the threat of deflation and sluggish economic growth on the continent. A third felt the slowing Chinese economy was a concern.

Slightly more than half of respondents believe that the European hotel industry is less than 18 months away from reaching the peak of the current investment cycle, which could indicate a changing investment landscape for 2017 and beyond.

Outside London, Scottish cities ranked in two out of the top three spots for regional UK investment destinations. For the second year in succession, respondents named Edinburgh as the most attractive investment destination in the regions, followed by a resurgent Manchester and Glasgow in third place.

Two-thirds of industry leaders expect revpar to grow in the region of 3-5% in 2016. "Although revpar growth in 2016 appears likely to slow, confidence in the regional UK remains high," said van Marken.

The rise in labour costs is anticipated to be an issue for regional UK hoteliers in the next 12 months according to half of respondents. New hotel supply and the possibility of an interest rate rise were also cited as potential threats to the UK regional market.

"Increasing labour costs are naturally of concern to UK hotel investors, particularly with hotel owners having to increase pensions contributions through auto enrolment, as well as deal with the introduction of the Living Wage scheduled for April next year," van Marken concluded.

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