The possibility of a UK exit from the European Union is having a negative impact on the UK hotel investment market, with transactions down 58% year-on-year during the first quarter of 2016.
Investors are believed to be waiting to see the outcome of the referendum on 23 June before committing themselves to investing in the hotel property sector, according to real estate company CBRE Hotels.
However, some players remained active with the aim of capitalising on what is currently a less competitive market. A shortage of stock is also having an impact on hotel investment in the UK, following on from the number of large portfolios brought to the market in 2015, which are unlikely to be offloaded again in the near future.
While the number of overseas visitors is expected to grow by 3% year-on-year during 2016, room supply is also expected to increase by 5%, resulting in a performance level that will struggle to achieve 2015 figures.
CBRE's research highlights that the transaction market is generally much more buoyant in mainland Europe, compared with the UK, with total investment figures reaching €3.7b (£2.9b), representing the second largest deal volume recorded in any first quarter in the last decade. This is despite transaction volumes reducing by 30% compared with Q1 2015,
Germany is fast becoming the most attractive market in Europe, replacing the UK, which has dominated investment volumes in the last decade. Transaction volumes in the country during Q1 2016 grew by 17%, representing a value of €750 (£593m).
Meanwhile, France was negatively impacted by the terrorist attacks in November 2015, resulting in a 43% decline year-on-year in transaction volumes, down to €206m (£163m).
Joe Stather, information and intelligence manager EMEA, CBRE Hotels, said: "Whilst hotel yields in markets such as London, Paris, regional UK and the top five German cities are low and stable relative to other key European markets, hotel profitability principally continues to track a trajectory of growth, highlighting scope for the continued increase of capital values on operational investments."
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