How hotel buyers can benefit from changes in the sector

The hotel and leisure sectors have experienced periods of ups and downs over the past few years as availability of cash and demand have waxed and waned. But these changes in market conditions are gradually starting to provide new opportunities to those considering buying a hotel.

In the past the majority of sales were those of smaller operators forced to sell up as times got tight. But the economic downturn has prompted a reorganisation of the leisure sector, delivering a substantial number of opportunities in the mid-market. Three and four-star properties in particular have become the subject of further consolidation as lenders look to reign in over-geared hotel groups. Properties that banks have been holding on to are starting to crop up for sale as confidence in the market grows and operators and investors see value in taking on additional projects.

Growth in consumer confidence is also generating a boost for the leisure sector as people are spending more on leisure activities than they were this time last year. The latest 'Taste of the Nation' report from business advisory firm Deloitte and BDRC Continental found that young people in particular are going out more, with those aged 18 to 34 spending 29 per cent more on food and drink this year.

Jon Lake, a corporate finance director in Deloitte's licensed retail group, explained the trend: “The going-out market remains resilient owing to Generation Y’s more carefree lifestyle and a touch of ‘austerity fatigue’. “They expect to go out even more over the next six months, which demonstrates just how ingrained going out is in their lives. It is a lifestyle, not a luxury and has become embedded in their culture.”

Booking into hotels is a step up from enjoying a meal out but the research does suggest that the end of the leisure industry's austerity phase may be in sight.

As the possibility of growth re-emerges, businesses are looking at how they will progress in the new climate. The De Vere group, for example, is selling off its non-core hotels and revamping its Village Hotels chain in preparation for a sale. It is also investing in the Grand Hall in Brighton, again with the idea of selling up in the future.

Principal-Hayley, the hotel and conference facility chain, meanwhile, is already on the market with a price tag of £500 million. It is thought that the group is likely to be acquired by a private equity company with the idea of using it as a consolidation vehicle.

As these companies look to dispose of assets, buyers can find some great openings to develop their own interests. Russell Kett, chairman of HVS London, a global hotel valuation business, suggests that despite the competition within the sector, the companies coming on to the market at the moment provide “an interesting opportunity for an investor to gain a foothold in the provincial UK mid-market”.

There are additional options open to investors with substantial backing who are in a position to purchase several groups. But buyers will need to be astute and must consider their long-term prospects as this kind of investment will take time and effort to come to fruition. But now is still a great time to start looking into a hotel purchase as the climate is changing and the market is opening out. As always, our advice is to keep a close eye on the industry so that you're in the best position to buy.

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