Christie & Co. Warns UK hotels Transactions Will Drop 2018 to GBP5bn

Date: January 2018

Who: Christie & Co, one of UK’s Big 6 hotel brokers sees small drop-off in 2018 (£5.3bn in 2017 to £5bn in 2018)

The UK has also see a change in investor profile, as private equity groups look to mainland Europe for better returns, with those who remain described as “more vigilant” by fellow broker Knight Frank.

Barrie Williams, managing director, hospitality, Christie & Co, told us that the volumes could yet move up, commenting: “You never know what large transactions are going to happen and when which can change the numbers at the end of the year as the Jurys Inn deal has done. It’s steady as you go in 2018. We’ve seen continued strength in the regional markets and portfolio deals – we’re waiting for the Grange Hotels deal, which should be a GBP1bn portfolio and that will change the number again.

“If you look back 12 months, everyone was expecting the Asian investors to come in and do the deals, but the large Chinese investors have been unable to get their money out of China and those who have been looking at sub-GBP10m hotels in the regions, where you can get returns of 9%, against 3% in London.”

Williams reported that some investors were now looking overseas, adding: “There’s an element over the past 18 months that the private equity houses are looking for better value in Europe – Holland, Belgium, Spain – where there are better returns.

“The UK is pretty stable, but will lag Europe as GDP grows there and the private equity groups are likely to go to other locations in Europe. In the UK we’ve had a new type of buyer enter over the period, a completely different buyer profile, shifting to longer-term holder, family offices which are looking for a freehold which they can hold for a generation. If you look at some of the transactions, there are a lot more of the institutions who don’t see the sector as an alternative point of view any more.”

In terms of ownership structure, he said: “The market is still on owner/operator and franchise models, with management contracts falling out of favour and leases in the ascendant.”

Looking at performance in the UK, Christie & Co said that, while it expected continued revpar growth driven by visitor numbers, last year it had been from tourists (up 20%) rather than business travellers (down 2.8%) with any further currency movement having the potential to impact 2018. Combined with increased stock (19,000 rooms in the UK in 2017 and 2018) and greater competition from providers such as serviced apartments, hostels and aparthotels, the effect would be to place pressure on existing, under-capexed hotels.

Williams said: “The concern I have is how people will manage costs. London had a difficult December but there is opportunity out there to increase revpar and it will be interesting to see how to grow the topline and Ebitda.

“The good hotel operators have always been very innovative in terms of what is thrown at them. There is no need to have people standing around when they are no needed at checkout and check-in. Depending on the type of hotel it depends on the type of people you need. It comes down to the type of owner what type of hotel you want. If you look at the private equity houses, who look at returns, it’s easy to make returns from the bed factories which don’t need as much staffing. But if you are looking at more of a trophy asset, there will be less of a focus on driving the performance.”

THPT Comment: firstly not that much of a drop and secondly not sure this is true! UK seems to be holding its own so far (January 2018). Agree the Chinese issues will maybe change their deals bullishness of last year, but as they say one man’s seller is another man’s buyer.

First Seen: Hotel Analyst (and more HA Perspective by Katherine Doggrell)