LONDON’S hotel sector is set to surge by 3.9 per cent this year as the Olympics and the Queen’s diamond jubilee help to bolster overseas and domestic tourist demand, according to Savills.
The real estate adviser said the UK hotel sector attracted £1.5bn of investment in 2011, up 0.8 per cent from the previous year, with 68 per cent of this focused on London and the south east.
Robert Seabrook, Savills joint head of hotels, said that while lack of debt financing remained the biggest challenge to investment in 2012, “the lure of the London trophy asset” would continue to attract overseas investors and drive growth.
Last year the five-star Sanderson and St Martin’s Lane hotels were snapped up by the Middle Eastern Capital Hill for £192m while the W Hotel in Leicester Square was sold for £200m to the Qatari conglomerate Al Faisal Holdings.
And just last week Dublin-based property developer Harcourt Developments put its five-star, 158-suite Wyndham Grand hotel at Chelsea Harbour on the market for £80m.
While foreign buyers have flocked in to buy prime assets, Savills said UK institutions have focused their attentions on the budget sector.
Of their £430m net investment in 2011, 73 per cent of this was in budget hotels, their research shows.
Marie Hickey, associate director of Savills research, added: “Operational performance is a big area of concern for investors with independent research showing room profit declines in both London and the regions, however the Olympics and Diamond Jubilee will no doubt provide a boost to London performance this year.”
Savills Valuation Index shows hotel capital values in London increased by 9.8 per cent last year, with regional hotels reporting a 3.7 per cent fall.
The so-called trophy asset sub-market reported the greatest growth of 6.8 per cent.
Earlier this week, law firm DLA Piper published a more negative outlook survey on the European Hotel secor, reporting that 84 per cent of investors and owners think that the hospitality market will see little or no growth in the next 12 months.