Hotel Consultancy HVS, based in London, has concluded in its annual round-up of hotel trading that the key to an improved 2012 outlook for the UK’s hotel industry will depend largely on the availability of debt to fund hotel transactions and complete long overdue refurbishments.
HVS outlined the sector’s turbulent 2011 as a modest rise in trading, despite the ongoing scarcity of available finance for transactions.
Tim Smith, a HVS London director, commented that continued investment was crucial for hotel operators, and could come from traditional sources, such as institutional investors or banks.
Lack of available debt financing will be an on-going constraint for many hotel transactions both in the UK and across the European market. New full-service hotel openings in 2012 will be mainly limited to key gateway cities such as London and Paris.
Banks with loans that need refinancing will either continue to ‘extend and pretend’ or lose patience and force a sale, possibly via insolvency.
Despite the ongoing recession, trading in London’s hotels rose during 2011 over 2010 numbers, with RevPAR up by 5.3 percent across the UK. However this was offset by the cost of operation rising at a similar rate, meaning for many hotels the rise in net operating income was negligible.
There was a similar number of hotel transactions in 2011 as in 2010, including the notable W Hotel in London, and the sale of the Mint portfolio to Blackstone for £600m. As well as sales, the collapse of the Von Essen Hotels into administration also marked the year, despite most of the 28 hotels now being sold or in exclusivity.
No-one is safe from the recession, however big they are.
Von Essen was a major victim this year, but I doubt it will be the last. The good news is that most of the hotels have found new owners – proof that it is more often the corporate entity rather than the hotel that fails.
Now is a good time for hotel buyers to acquire assets, so there could be an uplift in transactions in 2012.
