Growing appetite for ‘ground rents’ boosts Scottish hotel investment levels
Scotland’s prime cities have been named among the most active areas for UK hotel investment last year thanks in part to the growing prominence of ground leases, new analysis has revealed.
The UK Hotel Capital Markets Investment Review 2020 from independent property consultancy Knight Frank found that there was around £260 million-worth of hotel deals last year in Edinburgh, Glasgow, Aberdeen, and Inverness.
Glasgow was the most active city in Scotland, and third in the UK outside of London, with £170m spent across nine transactions in 2019, comprising of more than 1,700 rooms.
Beyond the four main tourist destinations, there was also significant deal activity, with 12 assets – consisting of around 900 rooms – changing hands for approximately £115m. The sale of the Fairmont St Andrews was the biggest deal of the year in the Scottish ‘secondary’ market, contributing around 45% of the total investment figure.
John Rae, head of Knight Frank’s Glasgow office, said: “It’s been a strong year for investment in Glasgow hotels – a reflection of the fact that it is emerging as a highly desirable tourist and events destination. The arrival of the COP26 United Nations climate change conference later this year is indicative of the scale of events that Glasgow can now host and it is a huge opportunity to highlight all the city has to offer.
“There are a substantial number of hotels rooms to be added in Glasgow over the next few years, with a range of well-known and boutique operators confirmed or planning new premises in the city. As they come on stream, we expect hotel investment activity to remain strong in the years ahead as investors increasingly look to alternative property assets.”
The Knight Frank report also found that hotel deals in Scotland have been boosted by the growing popularity of ‘ground rents’ transactions in recent years - a form of sale and long-term lease back deal that involves delivering steady income for investors and guaranteed access to a property for a hotel operator.
According to the firm’s analysis, ground rents transactions have accounted for around £100m of assets over the last three years, including the Hotel Indigo Glasgow, Marriott Moxy Aberdeen, and Apex Edinburgh – a noteworthy uplift on previous years.
Alasdair Steele, head of Scotland commercial at Knight Frank, added: “We have seen a significant increase in the number of ground rents deals since 2017, as investors seek out sources of secure, long-term income and hotel operators look to free up cash to invest in their businesses. They are also proving popular with similar types of occupiers, including the student accommodation and healthcare sectors.
“We expect ground rents to grow in popularity in Scotland, both among investors and occupiers in line with the rest of the UK.”