FPDSavills believes that the hotel sector has benefited from London's status as a world city and growth has been driven largely by the health of the global economy, rather than local influences. London's hotels depend on world trade and business as well as the number of tourist visitors.

However Yolande Barnes, head of research at FPDSavills, aired a note of caution. 'The rate of value growth slowed dramatically between March and September 2001,' she said. ' We think that values fell in the final quarter of 2001 and we expect our index to register a fall of around 5% before the next survey in March. The signs are that business hotels with a stronger UK base of visitors will hold up better than buildings in locations more dependent on tourist trade.'

In the longer term, the survey identifies continuing shifts in hotel supply and demand patterns from the traditional western hotel locations towards eastern locations and from traditional, out-of-date, converted buildings towards new, innovative, purpose-built, niche hotel types. Already, some regenerated areas of the capital have seen a 'star shift' as the number of higher grade hotels capable of being supported in an area increases.

The survey also looks at hotel site values which, it reveals, have grown even more than building values as developers compete for sites with other uses and cut margins in order to do so.

Paul Newman, director in FPDSavills' hotel team, said: 'It remains to be seen how the slowdown in the hotels market will affect developers. Some lenders have become more cautious in the face of global economic uncertainty and although development activity will remain constant in key locations, activity may abate in more secondary locations unless development opportunity is exceptional.'

FPDSavills' researchers believe that hotel land values are likely to suffer even more than building values and may fall by as much as 15% by June 2002.

Instant Insights /

Hotel Values Outperform Office Five Years Running

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