UK regional hotels and retail warehouses are the asset classes most likely to experience inward pressure on prime yields in the coming months, according to new analysis from Savills. Based on the firm’s latest Market in Minutes report, prime yields across all sectors didn’t experience any change in April compared to the previous month, but regional hotel yields are the most liable to harden in the near future.
Despite total investment into commercial property last year being 4.8% down on 2017, the hotels sector bucked the trend and reported volumes of £7.8 billion in 2018, a 45% increase on 2017. The appetite for hotels, in particular the leased/institutional segment of the market, is what is causing the downwards pressure on yields. Savills notes that investor appetite in the sector is being sustained by robust operational performance in some markets with revenues per available room (RevPAR) up 3.1% year-on-year in Q1 19 with the regions seeing 1.4% growth according to STR.
Marie Hickey, director of commercial research at Savills, comments: “UK hotels have enjoyed a strong couple of years in terms of investment as the sector has shifted to become a mainstream asset class with a broader investor pool. The underlying fundamentals of the sector remain attractive. As with the retail sector the shifts in consumer spending are having a direct impact on hotel demand, albeit in this instance in a largely positive way as spending on holiday accommodation has increased 61% since 2009.”