Asian capital boosts UK hospitality sector
Investors are thinking long-term as more Asian capital arrives in the UK real estate market.
The ongoing popularity of the UK’s hospitality sector was evidenced last week with a major injection of capital from Asia.
Hong Kong real estate group CK Asset Holdings paid US$5.59 billion (£4.6 billion) for the debt and equity of UK pub owner and drinks group Greene King, which holds 2,798 pubs, restaurants and hotels in its portfolio.
The deal is a sign of investor confidence in the market, says UK head of capital markets at JLL, Alistair Meadows.
“Seeing more Asian capital come to the UK is a reassuring sign given current market uncertainty. It’s a sign of confidence in not only the UK food and beverage sector, but equally in the underlying real estate.”
The Greene King portfolio, most of which is located in the Greater London region and south of the UK, has market value of £4.5 billion against a £3.5 billion book value. More than 80 percent of the portfolio is freehold.
Currency will almost certainly have played a part in the decision, says Meadows, with the UK pound trading at its lowest level versus the HK Dollar and the US Dollar since 1986.
Currency hedging conditions have shifted Asian investors’ focus from the U.S. to Europe in recent months. Negative currency-hedging effects have made acquisitions in the U.S. more expensive, while investments in Europe are more favourable given the continued low interest rate environment in the UK and Eurozone.
The deal comes almost five years after Greene King took over rival Spirit Pub Company in a £774 million deal which added 794 managed pubs. More recently, the group has reduced its estate, offloading 40 non-core pubs in the last financial year. It now has 1,714 retail pubs, restaurants and hotels and 1,084 tenanted, leased and franchised pubs.
There’s a diverse range of capital, both domestic and international, with appetite for the UK, says Meadows.
“That’s ranging from Korean and North American pension funds to European and Asian insurance companies, global sovereign wealth funds and U.S. private equity real estate funds,” he says. “Investors are looking beyond the current uncertainty to the long-term.”