The analysis is based on a sample of 25 regional hotels in the UK.  The 20-year survey period encompasses two periods of recession (1981 and 1993) and two periods of peak performance (1990 and 1998).  A broad cross section of hotels is represented in the study, including three- and four-star quality properties operating in major urban, suburban and airport locations.  Although some hotels have changed ownership over time, companies such as Forte, Whitbread, Swallow, Queens Moat House, Holiday Inn, Sheraton, Renaissance and Marriott are represented in the sample. 
 
Underlying the growth in property value is sustained real growth in profitability.  Trading profits are shown to have increased between 2.9 percent and 3.5 percent in real terms over the 20-year period, however short-term volatility in earnings performance is evident.  Although the study does not examine the reasons for the growth in profitability, the authors theorize that increased customer loyalty to brands, increased flexibility in staffing and the introduction of technologies such as yield management may have had some effect. 

The real increases in operating profit support higher values.  Whilst investment in offices, factories or warehousing deteriorates over time, hotels tend to appreciate.  Although hotels require significant capital refurbishment to remain competitive, the study shows that such investment does not materially lower the long-term yield.

Study authors Nick van Marken and Alan Hopper, London-based partners in Andersen’s UK Hospitality consulting practice, say that these findings support the recent investment in hotels by financial institutions such as Nomura, Royal Bank of Scotland, Norwich Union and Bank of Scotland.  Comments Alan Hopper, ”The results of this study indicate that financial institutions recognise the superior returns achievable with an investment in hotels compared to other types of properties.  An understanding of the drivers of value in the hotel industry is a necessary part of the tool kit of hotel investment.  This study adds significantly to the arsenal of knowledge available to the investment community.”

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