London remains top hotel investment pick in Europe

• Almost a third of hotel investors name London as the most attractive investment destination 
• Geopolitical instability perceived as a risk for 2016
• The current investment cycle is viewed as likely to peak within the next 18 months

For the second year in succession, London has been voted the most attractive hotel investment destination in Europe, according to a survey of senior hospitality industry figures by Deloitte, the business advisory firm. The survey results have been launched ahead of the 27th annual Deloitte European Hotel Investment Conference.

Almost a third (31%) of respondents ranked the UK’s capital as the number one hotel investment destination in 2016, ahead of joint-second Barcelona and Madrid (both 27%), which were narrowly followed by Amsterdam (26%). Paris slipped to fifth place after being second last year. London’s ranking comes despite more than half of respondents (57%) regarding the city as being ‘overvalued’.

Nick van Marken, global head of hospitality at Deloitte, commented: “London is again the standout. Some 2,500 luxury hotel rooms alone have been announced as opening by 2021, with an investment value we calculate as in excess of £3bn. When you consider all the other hotel projects, the total investment pouring into the city is phenomenal.

“Although some investors see the city as overvalued, London’s position as a proven destination for both business and leisure remains unparalleled. Investor appetite and its added status as a safe haven means we expect capital flows to remain strong.”

Half of respondents view the primary source of investment into Europe to continue to originate in China (51%) and North America (49%) in the next 12 months, largely driven by a weaker euro, attractive yields, favourable interest rates and economic recovery.

Noted van Marken: “Investment into Europe continues at pace, with the UK leading the way in terms of volume, and private equity remains very active. Germany has seen a sustained period of both strong performance and investment. Attention now seems to be focused on Southern Europe, particularly Spain.”

Despite the optimism, senior hospitality figures also highlighted several risks facing the industry in 2016. More than half (54%) identified geopolitical instability in parts of Europe as a key risk, with the same proportion concerned by the threat of deflation and sluggish economic growth on the continent. One-third (34%) feel the slowing Chinese economy is a concern.

Significantly, the majority of respondents (54%) believe that the European hotel industry is less than 18 months away from reaching the peak of the current investment cycle, which could indicate a changing investment landscape for 2017 and beyond.

van Marken continued: “In a sure sign of where we are in the investment cycle, resorts are also in favour. The European resort market is seeing a lot of investment activity, with Spain and Portugal leading the way. Luxury hotel operators are very active, with a number of new projects recently announced.”

Regional UK hotel recovery ahead of Europe
Outside London, Scottish cities ranked in two out of the top three regional UK investment destinations. For the second year in succession, respondents named Edinburgh (47%) as the most attractive investment destination in the regions, followed by a resurgent Manchester (40%) and Glasgow (23%).

Two-thirds (64%) of industry leaders expect regional RevPAR to grow in the region of 3-5% in 2016. The survey also found that recently arrived UK hotel investors are expected to focus on rebranding and repositioning (55%).

van Marken added: “Optimism over hotel investment in the UK Regions remains strong. Although RevPAR growth in 2016 appears likely to slow, confidence in the regional UK remains high.”

The rise in labour costs is anticipated to be an issue for regional UK hoteliers in the next 12 months (53% of respondents). New hotel supply (42%) and the possibility of an interest rate rise (33%) were also cited as potential threats to the UK regional market.

van Marken concluded: “Increasing labour costs are naturally of concern to UK hotel investors, particularly with hotel owners having to increase pensions contributions through auto enrolment, as well as deal with the introduction of the Living Wage scheduled for April next year.”

Despite this, over a third (34%) of industry leaders expect to see price multiples of 12 times or more in the UK regions, further supporting the view that the health of the regional UK hotel industry is currently very strong.

End

Notes to editors

About the survey
Over 80 senior hospitality figures, including owners, lenders, developers and investors answered a series of questions on the European hotel investment market to ascertain their views of key trends and how these will shape the industry in 2016.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.