FINANCE: UK hotel transactions are heading for a record year after a strong start to 2014, according to Deloitte.
The firm said that in the first six months of 2014, UK hotel transaction activity totalled around £1.5bn – the second strongest start to a year since the peak in 2007.
It follows last year’s first half high when activity was just short of £2bn.
Although transactions fell year-on-year, the first half was still up 65% on the previous six months which could lead to a potential record year, said Deloitte.
Looking at activity during the period, the audit giant found Q1 was dominated by smaller provincial portfolio deals.
This included the sale of the Four Pillars portfolio in January for £90m and De Vere Venues in March for £232m; both acquired by Starwood Capital.
Two former Akkeron Hotel portfolios changed hands after entering administration – five leased hotels to West Register and the 14-strong Forestdale portfolio acquired by Somerston through St James’s.
Due to the lack of any significant portfolio transactions, single assets tended to dominate, contributing 70% of total transaction volume.
London led in terms of deal size, with the sale of the Edition by Marriott to ADIA for more than £150m.
In April, US REIT Strategic sold the Marriott Grosvenor Square for £125m to Joint Treasure – a private equity firm backed by Hong Kong-based Chow Tai Fook, the Singapore Wee Cho Yaw family and David Chiu of Far East Consortium.
Activity outside the capital was bolstered by several factors: investors looking to consolidate; banks offloading assets; distressed sales; the scarcity of London deals; and improved trading fundamentals and higher profit margins.
According to Deliotte, M&A activity in the regions contributed 60% of total investment or circa £780m – the second highest figure in eight years – albeit still some way off the peak at £4bn in 2007.
Overall, better functioning capital markets, increased availability of debt (and the arrival of alternative lenders) and stronger macro-economic and trading fundamentals have led to the increasingly competitive pursuit of deals.
Nick van Marken, global head of hospitality at Deloitte, said: “This is the second strongest start to a year since the peak in 2007.
“Macro-economic fundamentals have finally caught up with investment sentiment, which has further stimulated appetite for the hotel sector. We anticipate continued strong interest from investors, but a potential lack of product given the substantial capital the market has to deploy.”
