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June 21, 2016

Image: the Ace Hotel in London’s Shoreditch, one area experiencing a hospitality boom

Hotel investors are branching out in London for their hotel asset management, heading to east of the UK capital and into less competitive segments, according to a new report.

Just one in 10 of the 18,000 hotel rooms that opened in London in the last four years were in the West End – the historical heart of its hospitality industry. Meanwhile, budget hotels now make up 20 percent of London’s total room stock.

The shift eastwards looks set to continue, says Graham Craggs, Managing Director of JLL’s Hotels and Hospitality Group in the UK.

“New infrastructure developments in London such as Crossrail and the Thameslink upgrade continue to drive regeneration and unlock interest in hidden corners of the capital.”

‘Not only is this likely to heighten visitor demand and trading performance in the future, it will also aid the absorption of new supply.”

Budget boom
With hotels expanding into less expensive areas, less expensive parts of the sector are also seeing a surge in investor interest. Since 2012 more than half of the 18,000 hotel rooms that have opened in London have been in the budget sector. And 33 percent of the 7,000 rooms due for completion in 2016 will be in budget hotels.

Only 4-star hotels have a higher share of London’s hotel room supply with 36 percent of the city’s total rooms.

Why budget?
The budget sector’s growth stems from a development spree in the wake of the global crisis and in the run-up to the 2012 London Olympics. Budget chains took advantage of reduced competition and lower prices for central sites. The operators with the largest number of rooms within a single brand are Premier Inn (9,467 rooms) and Travelodge (8,164 rooms).

Craggs adds, “Developers are recognising that hotels can create vitality and positively influence values for other property uses in the immediate vicinity and as part of mixed use schemes.

“This recognition, in addition to increased numbers of visits to the capital, is spurring new development activity across London, particularly in fringe hotel locations.”

In 2015 the UK capital accounted for about 36 percent of total investment into the European hotel sector, with volumes hitting £3.9 billion – more than twice the amount reported in the previous year.

Meanwhile in the same year the city hosted 18.8 million international visitors – an increase of 4.4 per cent on 2014 when comparing the first three quarters of the years.

New entrants
US-based luxury hotel operator Standard International is opening its first UK hotel in King’s Cross in 2018.

Shoreditch will welcome 800 additional rooms this year with new hotels including budget chain Z Hotels and Nobu Hotel Shoreditch.

For more details, see the London Hotel Development Monitor or read more about 3 rules of thumb that hotel asset managers should sometimes break

Graham Craggs
Managing Director, Hotels and Hospitality, JLL UK

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