CoStar Analytics
After what seemed to be a very quiet start to the year on the hotel investment front, a flurry of deals surfaced in February with some notable assets trading.
The past week saw two landmark regional assets exchange hands, both to investors from abroad.
Firstly, Pandox acquired the 232-room Queens Hotel in Leeds for approximately £53 million (£228,000 per room) from Aprirose. The Group announced that the acquisition is initially being financed via existing funds and credit facilities, while the seller may have disposed of the asset to create some liquidity especially following the £16 million investment to refurbish and extend the hotel in 2021.
Meanwhile, Fattal Hotel Group purchased the 201-room Grand Hotel Brighton for an undisclosed sum, reported to be up to £60 million. The seafront property sold in 2014 for around £50 million to Wittington Investments. The group plans on refurbishing the hotel’s rooms and facilities following the acquisition.
Leeds and Brighton have both recovered extremely well from the effects of the pandemic, influenced by the resurgence of the domestic leisure segment, with Leeds also benefiting from the rebound of events. With both assets being in prime locations, they can capitalise on leisure and business trade coming into the market, while recent and upcoming renovations are expected to drive additional value longer term.
London has also seen increased activity in recent weeks. Earlier in the month, the 75-unit Native Bankside sold for approximately £40 million (£533,000 per room) to JaStar Capital.
The property is expected to continue to be operated by Native Places under a new long-term management agreement and emphasises investors’ appetite for this sector given their profitable operating models.
Meanwhile, owner-operators with some liquidity were keen to snap up opportunities in the capital as with Dalata’s acquisition of the recently-delivered 182-room hotel in Finsbury Park, originally slated to open as a Premier Inn. The acquisition amounted to approximately £44 million (£231,000 per room) with the group reporting that an additional £2 million will be invested to the asset as it is brought up to the Maldron brand standards.
Finally, leisure-led regional assets have continued to appeal. Exclusive Collection recently acquired the 62-room Macdonald Ansty Hall for an undisclosed sum as it expands its portfolio into the Midlands. The sale further emphasises growth in demand for meetings and events as well as weddings which have seen a surge following the pandemic, due to the backlog created over the past two years.
Recent acquisitions may be reflective of the hotel sector’s success in 2022, enabling owner operators to have positive cash flows and liquidity for acquisitions. The past year saw some of the best performance metrics in the UK hotel industry, with many chains reporting improved profitability levels too, despite increased cost pressures.
Real estate tends to be attractive for being an inflation hedge, and hotels even more so in higher inflationary periods such as these. The ability to reset pricing daily is a key advantage and, so far, the sector has managed to pass on most inflationary increases to consumers. Average rates in January continued to see double-digit uplifts on 2019 and 2020 levels, up by 11% and 12%, respectively.
More institutional investors have taken notice of potential opportunities in the hospitality space too. For example, PGIM Real Estate recently announced that it was raising $400 million for its European core-plus strategy with the aim to invest in various sectors including targeting tactical opportunities in hotels.
With significant capital raised and sitting on the sidelines at present, the expectation is that deals will come to fruition in the coming months. Pricing remains a sticky issue as the market has not yet seen significant re-pricing in hotels in the same way other asset classes may have. As the year progresses and debt markets begin to stabilise, however, activity is likely to return in greater volumes with pricing expectations likely to be more aligned too.
cbalekjian@costar.co.uk