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Oversea interest rises

Hotel investment soars on back of low pound

Baxter's Place
Baxter’s Place redevelopment as the Marriott Courtyard Edinburgh

Investment in Scotland’s hotels sector in the first half of this year has almost equalled the total for the whole of 2016, according to a new report.

Spurred by the low value of sterling overseas investors have been particularly active, which will encourage the property developers seeking to get schemes off the ground.

Edinburgh continues to soak up most of the capital, accounting for 75% (£89n) of the £118 million pumped into the sector across the country in the first six months.

Total transaction volumes for the whole of last year reached £119.7m, according to data compiled by Savills.

Key deals include the forward funding acquisition of the Marriott Courtyard Edinburgh for £23.2m by M&G Real Estate in April along with the ground lease sale & leaseback of Safestay Hostel Edinburgh at a net initial yield of 2.46%.

Overseas investors have spent £46 million across six deals – almost six times higher than that seen in 2016 (£7.8m).

In Edinburgh these include US group PGIM’s acquisition of Safestay Hostel; Virgin Islands based International Hotel Properties buying Holiday Inn Express and a US investor purchasing The Bonham hotel.

Elsewhere, Chinese group Creation Gem International acquired The Isle of Eriska Hotel and Spa. The Singapore based 7 Hospitality bought Dundee’s DoubleTree Hilton.

Newton Hotel
Newton Hotel, Nairn: Indian buyer

Savills also points out both the Newton Hotel in Nairn and a the Highland Heritage portfolio have been purchased by Indian investors this year.

The firm says this reflects a wider national trend which sees investment by international buyers in 2017 total £1.2 billion, up 13.7% on full year 2016 levels and the £822m transacted by domestic investors. 

Steven Fyfe, associate in the hotels team at Savills Scotland, said: “Hotels in UK regional cities are in high demand with overseas investors – fuelled by the relative weakness of sterling, resulting in advantageous exchange rates, and the sharpness of yields in prime markets, providing owners with the opportunity to sell very comfortably just now.

“The beneficial knock-on effect is that purchasers of regional and provincial hotels are encountering increased competition from foreign buyers which increases the focus on alternative hotel stock available.

“Edinburgh remains the most sought after hotel market in the UK outside of London where occupiers and investors are keen to increase their presence by virtue of size, various brands and new concepts.”

Operationally, Savills says the Scottish market is polarised around the budget and luxury sub-sectors. Low cost lodging accommodation such as limited service hotels and hostels is popular with travellers in Scotland who are on a budget, says the firm, while the 4 & 5 Star sector is benefitting from higher spending guests seeking high amenity and comfort accommodation.

Mr Fyfe adds: “There has always been a four-figure pipeline of new rooms in Edinburgh, but demand is such that the city can easily absorb new supply as owners and managers note an ever longer ‘peak season’ for business.

“In particular we expect the arrival of the W Hotel will trigger other high-end operators to do the same. Meanwhile, Glasgow’s improving leisure scene including the Hydro Arena, part of the Scottish Event Campus, has seen the city’s hotel sector evolve to accommodate more than just business tourism.” 

Radisson Red
Radisson Red: Glasgow development

Savills notes key developments in Glasgow include Motel One which, with 374 rooms will be Scotland’s largest hotel by room numbers, and the first Radisson Red in the UK, with 176 rooms, opening next to the SEC. Both developments are due to launch early next year. 

Regarding the wider market, Martin Rogers, head of UK hotel transactions at Savills, adds: “The UK hotel market has had a strong start to the year as the sector remains resilient to the headwinds of the last six months.

“The favourable exchange rate has attracted overseas buyers that are looking for stable, long term income. The anticipation of a softer Brexit will provide further comfort, encouraging development and relieving pressure on staffing.”

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