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London Hotel Investment Is Sharply Up To £5.3B – But Next Year Could Be Quieter

London Hotel

London’s hotel sector has weathered terrorism and a wet summer — now it must cope with a spike in the supply of new beds.

London hotels's revenue per available room is up and rising, but 2018 could bring a spike in the supply of new beds and a 10% dip in investment volumes.

PwC’s latest U.K. hotels forecast shows that a mixture of economic growth deceleration, the wearing off of the effect of the weak pound on inbound tourism and a looming increase in new hotel rooms mean growth will slow next year.

Data from PwC shows revenue per available room in London up 6% this year and rising a further 2.4% in 2018. This will take RevPAR to £120 this year and £123 in 2018, placing London among the world’s highest.

London hotel occupancy remains strong, rising two points to 83%.

However, PwC points to data from AM:PM showing that over 7,000 rooms are expected to be added in London in 2018.

The firm predicts the total hotel property investment could reach £5.3B by the end of 2017, but will dip by 10% to £4.8B in 2018.

“With some significant portfolio transactions scheduled to complete in the second half of the year, we forecast year-on-year volume growth of 43% for 2017,” PwC U.K. hotels leader Sam Ward said. “Next year we forecast the momentum from this year to slow down with further restrictions on China foreign investment and slower RevPAR growth across the U.K. affecting deals.”

Manchester's Midland Hotel, until now one of a handful of upscale city centre hotels

The London market is watching the Q Hotels and Hilton deals, which will set the tone for the final quarter of 2017, Cushman & Wakefield EMEA Head of Hotels and Hospitality Jon Hubbard said.

City A.M. reports that Vincent Tchenguiz is selling a £600M portfolio of 10 regional Hilton hotels, including one in Croydon. U.K. hotel chain Q Hotels — whose flagship sites include Manchester’s Midland Hotel — is reported to be close to a £490M sale to Aprirose and China-based Cindat Capital Management, according to Hotel Management.

“Hotel buyer types are changing, and private equity may be net sellers in the next couple of years," Hubbard said. "We could also see a big uptick in interest from propcos, which show hotels are now a more mainstream buy.”