What is a Hotel Room Investment?
Hotel room investments are one of the newest and one of the hottest products available on the global property investment market. Part commercial property, and part residential, hotel room investments are one of the most profitable asset classes within which to invest, not to mention one of the fastest growing forms of investment in the world today. Our latest post examines the reasons why.
First Things First: The Numbers Behind The Success
According to a recent report carried out by industry experts Savills, UK hotel investment transactions are anticipated to reach a record £8.5 billion by the end of 2015, with a further 39% increase forecast. The UK boasts Europe’s best performing hotel market, as it continues to increase with year on year growth displaying great resilience to many recent external factors such as the recent vote to ‘Brexit’ following the EU Referendum and the uncertainty created in the aftermath. Prior to the referendum it was previously forecast that inbound UK tourist visits were set to increase by a massive 29% by the year 2020.
PricewaterhouseCoopers’ (PwC) latest forecast predicts that UK hotels will continue to see further revenue per available room growth throughout 2016, with the strongest growth forecast for the Provinces/Regions at 4.2% rather than the capital London at 2.3%, which already operates at a very high level. The UK hotel market is a consumer-driven real estate sector with performance closely linked to the overall economy. Generally speaking, demand has historically continued to outpace supply hence the unparalleled success in recent years.
According to the PwC 2016 forecast, hotels in the UK provinces and regions have enjoyed good performance in recent years and this is widely expected to continue throughout 2016. Following on from 10.4% revenue per available room growth in 2014, PwC expected a growth of 6.3% for 2015 and a further 4.2% in 2016. The pace of growth is slowing however, which is not surprising, given we have seen over 36 months of occupancy growth in the UK provinces and regions since November 2012. PwC expected occupancy to hit 76.0% in 2015 and had forecast 77.0% in 2016, which would be the highest on record, driven partly by structural supply shifts towards a greater proportion of budget rooms. The proportion of branded budget rooms in the active pipeline, including in London, remains high as investors continue to focus on this dynamic sector. It is generally considered a rule of thumb that once hotels achieve occupancy above 72.0%, they can leverage room rates, and at an average closer to 75.0% last year, we can see why provincial hotels were able to get some capital uplift on prices.
Why Invest In Hotel Rooms?
Investing in hotel rooms is as close to being the perfect property investment opportunity as you will find on the market today. As it comes fully managed, you simply invest/purchase a room(s) and sit back while you collect your income. The beauty of this form of investment is that there are usually no running costs or ownership fees so your income is truly a net income with no hidden costs. Too good to be true? Not in our case. We work with some of the leading real estate and hotel accommodation providers in the country, boasting exceptional track records and years of experience.
Ease and Accessibility
Investing in individual hotel rooms makes hotel investment accessible to the masses. The hotel industry is one of the biggest and fastest growing industries in the world.
Low Entry Levels – Low Risk
Investing in hotel rooms is widely considered to be a relatively low-risk investment. Although there is generally no finance available and it is a cash buyer investment only, the entry levels when investing in hotel rooms are relatively low. Generally speaking you can invest from as low as £47,500 in a single hotel room depending on the project or development, with zero running costs and no ownership fees. When investing into a globally recognised brand and an existing, fully operational business such as an established hotel it is easy to see how this would be considered low risk.
Contractually Guaranteed, Higher Than Average Returns On Investment
Hotel rooms can generate much higher income yields, particularly when compared to more traditional buy to let property investment. With annual returns usually in the region of 10%, they by far outperform the typical 5% – 6% returns investors realise from traditional buy to let property. All our hotel investment opportunities come complete with guaranteed rental yields, effectively a total investment package. This eliminates yet another level of risk from the investment, and you can therefore calculate your return on investment much easier allowing the investor to plan for the future with confidence.
Flexible Exit Strategies and Guaranteed Buy Back
One of the most popular and attractive benefits of investing in hotel rooms are without doubt the defined exit strategies available to investors. When purchasing/investing with us in hotel rooms, each investor will receive a UK title deed registered at the UK Land Registry. There are no restrictions on resale and it can be sold privately just like any other UK property. All our hotel investment opportunities also provide investors with developer-backed and contractually guaranteed buy back offers in place. These buy back offers usually also take capital growth into account thereby offering investors capital uplift on their investment of up to 20% at the end of the investment term.
We are proud to be able to showcase the top hotel room investment opportunities in the country, in some of the most popular tourist destinations. If you would like to know more about investing in hotel rooms in the UK please do not hesitate to contact our investment team today. Alternatively, browse our full range of hotel room investment opportunities now.