By Adam Raphael
GHG Newsletter January 2018
Visit Britain is forecasting 42 million overseas visits this year, representing an increase in spending of nearly 7 percent. Hospitality is a growth business thanks to a world-wide increase in tourism. But the boom in hotel investment in this country appears to be running ahead of reality. A huge amount of money is sloshing around. Never mind bitcoins, it is real stuff that is being splashed out.
Barely a day goes by without Boutique Hotelier, an industry newsletter, announcing the opening of a new luxury hotel or the multi-million- pound restoration of some ancient pile. Savills says that annual UK hotel investment volumes will reach more than £5 billion in 2017, up 25% on the previous year. From the tennis player Andy Murray’s million purchase of the Cromlix Hotel near his home town of Dunblane, to Guy Hands, a private equity investor pumping more and more millions into his loss-making collection of 20 Hand Picked Hotels, it is all go. Andrew Brownsword, who made his money from greeting cards, already has 13 hotels and has ambitious plans for expansion. The 25-bedroom Isle of Eriska Hotel has been bought by a Hong-Kong company. The private group of Midland investors who own Llangoed Hall in Wales are planning to own and operate a further nine hotels across the UK. The Livingstone Brothers, who already own Chewton Glen and run Cliveden, have just completed a multi-million revamp of the Lygon Arms in Broadway.
I shouldn’t winge. The Guide’s mission is to promote outstanding hotels; the more money that comes into the industry, arguably the better it is for British tourism in general. But the return on this investment, if there is ever to be a return, inevitably means higher prices. Already, staying a night at all but the most humble hotels is beyond the means of ordinary families except for a special occasion. Spending a week on holiday at a hotel with your children, not unusual a generation ago, is nowadays unfeasable except for the very rich.
Are there enough of these tycoons to keep all these new hotels going? While the stock market continues to boom, perhaps. But what happens when the economic cycle turns and financial reality intrudes? It is only six years ago that Andrew Davies’s Von Essen empire of more than 30 of the finest British country house hotels collapsed into administration, leaving Barclays and Lloyds, who had lent him nearly £300 million, out of pocket. The Guide continually warned that Mr Davies was a bad hotelier because our readers told us so, but the banks did not listen even when we pointed out that he was reluctant to pay his suppliers.
This time around, I don’t see a similar financial meltdown. But industry experts are sceptical of current trends. John Lewis, a hotel owner and investor, who used to run Cliveden, believes there is an over-supply of luxury hotels. He points out that returns, which have fallen in the last couple of years to less than 4%, are not sustainable. Another expert observer warned that hotels are being bought as commodities by Far Eastern investors, a trend fuelled by low interest rates.
What then is driving this flood of new money, much of it foreign, into the industry? The tax system is one reason with investors wanting to shelter assets from inheritance taxes. Brexit and the consequent decline in the pound may be another. Being a hotelier clearly also has an appeal for those who have made a lot of money in less glamorous pursuits. But hotels require more than investment; they need highly skilled and devoted day-to-day management. That is why the Guide likes hotels with direct links to their owners, preferably owner-managed. There is a big market out there for individual hoteliers with a clear vision and original style, as Robin Hutson has shown with his litter of Pig hotels, and Justin and Charlotte Salisbury with their Artist Residence group. . But don’t try and fake it. If it’s bullshit rather than boutique, it will not work.