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Is the next big opportunity outside of London?


On Thursday, 23 May 2011, Nick Pattie gave a presentation to an audience at the Henry Stewart Conference on the subject of future opportunities in the hotel sector outside of the London. A brief overview of this presentation is summarised below:

Influencing Factors on Hotel Valuations outside London

  • negative factors include: tight debt markets, operating cost inflation, public sector cuts;
  • factors of limited impact include: lack lustre trading performance, development pipelines and uncertainty around national and international economic factors;
  • positive factors include: project GDP growth, corporate sector recovery, volume of funds/equity looking at the hotel sector, strong demand in the limited service sector.

Compare and Contrast Performance Trends between London and Rest of the UK

  • the performance of the provincial UK hotel market has been less volatile compared to the London market;
  • performance levels in provincial UK are only just returning to 2000 levels in actual values (i.e. in inflated terms), meaning that in constant terms the provincial market is still behind 2000 levels;
  • with revenues not growing in line with inflation, GOP is under significant pressure in the provinces, whilst the picture in London is more encouraging at this level;
  • the divergence in GOP trends is driven by the fact that the total spend by visitors to London is much higher than that by visitors to provincial UK (£8.7bn and £5.8bn respectively, in 2010).

Forecast of Potential Growth in Trading Performance and Hotel Values outside London through to 2015

  • hotel performance trends tend to track GDP growth patterns;
  • future estimates of growth in GDP would suggest that hotel values could recover to 2005 levels by 2015.

Conclusions and Closing Remarks

  • values in provincial UK are expected to recover;
  • mid-market sector continues to be squeezed by the limited service sector;
  • lending to hotels in the provinces is likely to remain tight for at least another two years.

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