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LONDON-Investment in British hotels has comfortably outperformed the FTSE-100 index of top shares and other commercial real estate sectors according to a report released today. The Andersen UK Hotel Investment Study concluded that unleveraged yields of 17% were achieved from a variety of regional UK hotels over a 20-year period compared to 13.7% from the FTSE 100 and 12% in UK property. While investment in offices, factories and warehouses deteriorates over time, hotels tend to appreciate.

Andersen’s Alan Hopper, partner in the firm’s UK Hospitality consulting practice, says the findings explain recent investment in hotels by financial institutions such as Nomura, Royal Bank of Scotland, Norwich Union and Bank of Scotland. Hopper notes: ‘The results of the study indicate that financial institutions recognise the superior returns achievable from investment in hotels compared to other types of property.’

The analysis was based on the sample of 25 regional hotels in the UK. The 20-year survey included two recessions, in 1981 and 1993, and two periods of peak performance, in 1990 and 1998. A wide range of hotels are represented in the survey, including three- and four-star properties based in major urban, suburban and airport locations. Although some hotels have changed ownership over time, companies such as Forte, Whitbread, Holiday Inn, Sheraton and Marriott are included in the sample.

Trading profits have increased between 2.9% and 3.5% per annum in real terms over the 20-year period, although volatility in earnings performance is evident in the short-term. Although Andersen does not examine the reasons for growth Hopper says, ‘It is possible to theorise that increased customer loyalty to brands, increased flexibility in staffing and the introduction of new technology may well have all had some effect.’

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