UK budget hotels offer five star performance as investors compete for long leases, says IPD
Turmoil across the conventional property sectors in the UK has seen increased diversification amongst investors, which drove hotels returns to 10.4 per cent in 2011.
In comparison the UK commercial property sector returned 7.8 per cent.
Many existing leases on budget hotels are 20 years or longer, with a fixed inflation linked rent review every five years. With no voids or vacancies, such long term income characteristics are becoming increasingly rare and therefore valuable in the current market.
Competition amongst UK investors for prime leased hotels in major UK cities remains strong, according to Graham Craggs, Jones Lang LaSalle Hotels. The research, commissioned by AXA Real Estate, HVS, Invesco Real Estate and Jones Lang LaSalle Hotels, shows EMEA hotel transaction volumes reached an impressive EUR8.6bn in 2011, a 10 per cent increase on 2010.
Ongoing bank disposals, along with ambitious expansion plans from key UK budget players, such as Travelodge and Premier Inn, have further tempted investors.
Budget hotels returned 10.3 per cent in 2011, compared to the 8.6 per cent delivered by luxury hotels, according to the IPD Pan-European Hotel Performance Report. Fixed rent leases returned 11.0 per cent, and variable leases 9.2 per cent.
However, some new operators are opting to sign up to hybrid and variable leases, which allow more flexibility for operators and landlords, and less chance of unaffordable rental repayments.
Tim Smith at HVS says: “The strong performance of the UK overall is in part due to the continuing popularity of London and partly as a result of the growth of the limited service sector. However new arrivals to the UK demonstrate the continuing dynamic attraction of the country to operators and investors.”
Greg Mansell at IPD adds: “Austerity cuts in various European nations will be a key factor in performance moving forward. It remains to be seen whether economic weakness in Italy and Spain, two important hotel markets, will translate into continued pricing corrections within their respective markets.”
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