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London hotel market accounts for over half of total UK hotel investment

More than £1.bn was invested in the London hotel market during the first half of this year, which accounts for 55% of the UK’s overall total of £2bn, new figures reveal.

A strong tourist market, narrowing yields and a weaker pound have all boosted investment into the capital, with international investment accounting for £756m, or 68%, of investment into London’s hotels, according to Savills.

The company reports that net initial yields for prime freehold hotel investments in London are currently between 3.85%-4.25% compared to the end of 2016, which saw them at 5.13%.

High interest from Asian investors, particularly from Hong Kong, Malaysia and Singapore, has helped fuel demand for hotels in London, where capital values are now 61.5% higher than at their 2007 peak.

Gary Witham, director in the hotels team at Savills, said: “London continues to remain popular with tourists and investors alike. We have seen significant interest in the first half of the year from overseas capital as the weak sterling creates a favourable market. With capital values now standing so high and with growth relatively subdued we expect to see owners that purchased before 2015 starting to look to sell.”

Savills highlights key deals in the first half of the year as the purchase of the Threadneedles hotel in the City of London by Malaysian firm YTL Hotels, the acquisition of the Levin hotel and the Capital hotel by US based Warwick Hotels and the sale of South Place Hotel by Frogmore.

Amy Farrugia, senior analyst in the hotels team at Savills, commented: “There has been an increasing diversification in the origin of the capital being deployed into London as it continues to be seen as an investment safe haven.

“We expect Asian capital to continue its high level of activity to the end of the year although there is a severe shortage of quality assets priced between £20m to £100m in the capital.”

Looking ahead, the firm predicts that investment into the London hotel market will reach £2.8bn by the end of 2017 and the UK hotel market will transact circa £5.1bn for the full year, up 28% on the 2016 total of £4bn. 

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