Investors plough over £230m into Yorkshire hotels

THE Yorkshire hotel market saw investment reach over £230m last year making it the fourth most active region in the UK, according to a new report.

Leeds city skyline and rail tracks in the foreground, Leeds. ADOBE STOCK. Picture: Shahid A Khan

A total of 19 assets exchanged hands in the region, including some well known branded hotel stock as a result of various regional portfolio acquisitions.

These assets included the Hallmark Hull, Hilton Leeds City, Hilton York, The Crowne Plaza Harrogate and the DoubleTree by Hilton Leeds. As a region, the market achieved an average price per room of £116,000, a 13 per cent rise compared to the previous year.

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Leeds came sixth in the city hotels investment charts in the UK after £100m was invested in the sector in the city last year. Manchester was in first place.

Nationally, the UK hotel market defied expectations and saw investment reach £6bn in 2019, attracting a 26 per cent increase in investment by institutional investors, Knight Frank’s UK Hotel Capital Markets: Investment Review 2020 report said.

However, after an exceptional level of portfolio activity in 2018, last year saw hotel transaction volumes slow by £1.2bn. This represents a three per cent decline compared to the five-year average following lower investment activity linked to Brexit-related uncertainty and a turbulent political landscape. It remains five per cent above volumes in 2017.

Total institutional investment (both UK and overseas) into the UK hotel market reached £2.5bn in 2019, increasing by over a quarter and accounting for 41 per cent of total UK hotel investment. This came as UK institutional investors more than doubled their investment into the sector to over £2bn.

Whilst investment into mainstream asset classes experienced steep declines in 2019, the weight of capital invested into alternative property during 2019 increased by 4.8 per cent year-on-year.

Investors were attracted by long-term income to diversify their portfolios, combined with the awareness of the growing demand for experiential travel and location-based experiences, which are further driving investment in the sector.

Shaun Roy, head of hotels and specialist property investment at Knight Frank, said: “We have continued to see a strong demand for secure, long-term fixed income assets which has meant that despite uncertainty within the general investment market, investment into the hotel sector has remained strong, particularly driven by institutional investors.”

Eamon Fox, head of office agency department and partner at Knight Frank’s Leeds office, added: “The buoyancy of the hotels sector in Leeds is not surprising, given the growth of the city’s economy in the past 12 months. The office market is thriving, stimulated by Channel 4’s move to the city, and this is being reflected in inward investment not just in offices, but in retail, leisure and hotels. The outlook for the city is bright, especially since HS2 is now looking more like a reality than a dream”.

Knight Frank remains cautiously optimistic for the hotel investment sector in 2020.

The property company, which has offices in Leeds, Sheffield and Harrogate anticipates a rise in higher value stock coming on the market, resulting in increased activity from overseas investors, particularly from Thailand, Japan and the Middle East.

As such, Knight Frank considers that UK hotel investment volumes have the potential to rise beyond the three-year average of £6.3bn.

Mr Roy said: “We predict that 2020 will see more portfolios and higher value assets coming to market to capitalise on the growing appetite from UK and overseas institutions.”

Meanwhile, London also remains attractive to hotel investors, with hotel investment targeting the city reaching £2.7bn in 2019, whilst its market share of total UK hotel investment increased to 43 per cent. Though this represented a decline of 11 per cent year-on-year, this level of investment is equal to the capital’s five-year average investment volume and is 10 per cent higher than 2017 volumes.

The total volume of hotel transactions in the UK regions totalled £3.2bn, a decline of 20 per cent compared to 2018 but equalling the level of investment recorded in 2017. Manchester attracted £500m of investment, the highest investment volume within the UK regions, recording 18 per cent market share. It led to the North West becoming the UK’s most active region for hotel investment.