The hotel property market is booming with new investors targeting the staycation crowd, says Julian Troup.
Despite the fact that hotels have now been closed for months on end, the banks have remained calm. There have been few distress sales and it has been encouraging to see that most of the banks are ‘open for business'. Alternative lenders have also been showing an increased appetite for the sector.
Activity is largely being driven by cash buyers who, over the past few months, were trying to obtain substantial discounts, but have now begun to modify their positions, aware that numerous other buyers are also looking for hotel assets. As a result, they are increasing their focus on snapping up opportunities swiftly. It is notable that the higher levels of demand are being experienced for all the prime provincial UK cities, not only for London.
These would-be owners are looking beyond the current constraints of the pandemic and seeing the opportunities that lie ahead, given the prospect of not only another staycation summer this year, but also a long-term shift in the UK holiday market as more people choose to take breaks in this country rather than travel abroad.
In addition to cash buyers, we have also witnessed an increase in the diverse range of potential purchasers and their reasons for wanting to buy a hotel.
Who are these buyers? The majority are investors who can see the opportunities they can realise by buying a hotel in a prime tourist and business location. And when it comes to swift deals, there can be few to match one recently negotiated by Colliers for the confidential sale of a London hotel. The deal was agreed on a Friday evening and contracts exchanged one working day later. It was the quickest deal that I can remember in my career in hotels agency. Furthermore, the price agreed was ahead of the guide, following competitive bidding.
However, there are also a pleasing number of new-to-market entrants who have decided they do not want to return to the rat race. Instead, they want to run their own hotel, bed and breakfast or pub, and there is a consequent increase in demand for leisure-based hotels in the south-west, the Cotswolds, the Lake District, the National Parks and prime coastal resorts, replicating the demand among holidaymakers to stay in these destinations.
There are also a pleasing number of new to market entrants who have decided they do not want to return to the rat race
Other purchasers have been taking the opportunity to buy assets for conversion or repurposing for more viable purposes. These buyers can see how they can cater for a new market, whether that is residential, care and nursing homes, or education, to name but a few, and they are showing foresight given this country's housing shortage and its ageing population.
While the focus of the purchasers we have been dealing with during the pandemic has varied, all of them have shared the same appreciation that in buying a hotel they benefit from its existing use and also its potential for other uses. This versatility has been underlined by the way in which hotels located near airports that previously catered for holidaymakers and business travellers have been swiftly converted into quarantine hotels.
We are living at a time when changes are occurring at a rapid pace, and in this context the versatility of a hotel can add value to the asset. The activity that we have been seeing in the market indicates that the smart buyers have recognised this.
Julian Troup is head of UK hotels agency at Colliers International
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