Last year, UK hotel investment totalled £7.4 billion, with overseas investors representing 78% of total investment. Institutional investment grew by 42%, equating to over £2.1 billion investment in hotel property according to a report from Knight Frank.
As this market proves to be opportune for investors, Tim Harrison, Chairman of Linear Wealth Management, discusses the opportunities and institutional qualities of hotels on Linear Talk.
He argues that due to Brexit and an uncertain political landscape, we have arrived at a point whereby investors are looking away from equity markets for capital growth and yield.
Whilst bonds historically have been the place to go, more investors are looking for alternative investments. Echoing this, the Paris Inn Group reports that hotels can be a reliable investment, producing constant and predictable returns. They offer investors an alternative to investing in traditional real estate markets such as the tertiary and residential sectors.
By consequence, a report by Knight Frank states that hotel room investments are growing increasingly popular due to their low risk/high return and low maintenance qualities. Vojo Ventures also puts across the argument that real estate assets (including hotels) are excellent inflation hedges.
According to property investment firm Sterling Woodrow, a hotel room investment is attractive as it can give an investor regular passive income as well as a lump sum profit if an exit strategy is put in place. New Nordic echoes the exit-strategy advantage of hotel rooms. They can be a lucrative opportunity for investors if they are in the form of a buy-back options, investor capital is protected and ensures a guaranteed profit at the time of exit.
With that being said, like with all investments, there are risks to be acknowledged. With this in mind, it’s critical to take in consideration the location of the hotel. Popular tourist destinations can be opportune as they attract guests. Hotel investments are investments in a business, so it is vital to consider the performance of the hotel.
The sector is especially dynamic in France, The Paris Inn group confirms. The country remains the world’s premier tourist destination with 90 million international tourist arrivals in 2018 (government figures). At the same time, The First Group argues that Dubai could be a worthwhile opportunity as tourism is increasingly growing ahead of the World Expo 2020.
When it comes to investing in a hotel room, it is important to know the kind of asset you want. It is crucial to evaluate the market you are investing in. For example, the luxury hotel market is rarely impacted by economic downturn, which contrasts midscale hotels. Higher priced hotels can provide more stable income in comparison to budget hotels.
It is also important to recognise that hotel property investments have very little capital appreciation. Since they are not a quick win, they are better suited to long-term investors. Like with all investments, it is critical to weigh up the opportunities and the risks.
Demand for alternative investments has reached record levels for Harrison and his team at Linear, with investors using Brexit and Political uncertainty as an opportunity to diversify their portfolio and in some instances, enter the UK for the first time. With that being said, sourcing quality stock is not a problem at the moment for Linear with a large number of trophy hotels on their roster, along with other high-ticket items. It appears Christmas shopping has stepped up a level already for many!