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News Release

London

UK Hotel investment market - management contracts less attractive

Investors shying away from secondary locations


London, 4th January 2009 – According to research from Jones Lang LaSalle Hotels, the hotel investment market in the UK in 2008 witnessed the same downward trend as the overall EMEA (Europe, Middle East, Africa) region, with hotel investment volumes in the UK totalling £1.6bn in 2008, a significant decrease of 68% compared to the £5.2 billion transacted in 2007.  This reflected a particular decline in portfolio transactions, down 81% from £ 3.8 billion to £ 0.7 billion.  Of this transaction activity, 85% was transacted prior to September 2008.

There was also a shift in investment type, with lower risk investment properties regaining popularity in 2008, as investors started to shy away from secondary markets and secondary assets.  A notable shift was recorded from transactions subject to management contracts to vacant possession deals and those subject to lease contracts.

Jonathan Hubbard, managing director for Northern Europe at Jones Lang LaSalle Hotels explained: “This trend coincides with hotel operators being more prominent purchasers in the market, moving to an own & operate model, often under a brand franchise, and reversing the trend seen in recent years. Moreover, active investors in the current market are focusing on reducing their risk. With trading performance across the country expected to deteriorate in 2009 at least, the relative security of lease agreements are preferred. This is a notable difference from recent years, when management contracts were the dominant transaction type in the UK.” 

Ranked second on the buy side were High Net Worth Individuals, accounting for 29% of hotel investment volume in the UK. Investment by private equity firms all but vanished in 2008, down 94% from £799 million to £45 million.

Geographically, there was also a refocus on London, with single asset investments in London representing 66% of the total single asset volume across the UK, compared to 57% in 2007.

2009 is set to be a challenging year for the hotel investment market in the UK and a further decrease in the transaction volumes can be expected. Portfolio activity, in particular, is expected to remain subdued during the year in the absence of available financing. However, single asset transactions may be stimulated by forced sellers. Jonathan Hubbard concluded; “2009 may well be the year of distressed assets – with investors hoping to secure a bargain. Early signs of this can currently be seen in UK secondary markets.”