10 Hotel Insiders Speak About UK Brexit Implications

David Rees, principal, Capital Allowances Consulting: “If anything, the effect on hotels may turn out to be entirely positive. Brexit should have no effect on the U.K. as a top tourist destination, and the drop in the value of sterling makes London attractively cheap … This should mean increased visitor numbers. London hotel assets are now cheaper for overseas investors, who will probably buy for a 10- to 15-year hold, which looks beyond the short-term uncertainty.

“Whatever happens in Brexit, London is still likely to continue to be seen as a long-term safe haven for capital. As far as the domestic agenda is concerned, plainly uncertainty will reduce the confidence to invest, and so perhaps the government should look to reinstate the £500,000 ($659,250) Annual Investment Allowance.”

Thomas Magnuson, co-founder and CEO, Magnuson Hotels: “The shock to the system … will cause short-term instability in global financial markets. However, we view that Brexit will have minimal, if any, impact on U.K. tourism and the overall hotel industry because consumer travel and new hotel development are locally based decisions, independent of the vote to leave or the regulations overseen by the EU.”

Paul Newman, head of leisure and hospitality, RSM UK: “Changes to rules on migration and its impact on the employment environment represent the biggest operational risk factor over the longer term. Any arbitrary immigration cap is likely to impact more heavily on transient migrant workers, who are often the life blood of front- and back-of-house in many hospitality sectors. Although this could provide opportunities for U.K. workers, any potential drain of specialist skills and talent from outside the U.K. would certainly have a detrimental effect on operators across the sector.

“The investment environment is also likely to be impacted, particularly in private equity. If global institutional investors decide to steer clear of U.K. funds, the supply of new money will be reduced and may cause some funds to enter run-off mode, reducing new investment and further stifling mergers and acquisitions activity in the sector. The appetite for new public share issues is also likely to diminish in the short term.”

Mike DeNoma, CEO, GLH Hotels: “From a London perspective, (will Brexit hurt the hotel industry?) In the short term, maybe yes; medium to long term, no. We believe London’s one of the most attractive hotel markets in the world and see that continuing for certainly the next decade.

“The pound provides an interesting currency diversification option in a volatile world and London hotel real estate against an increasingly negative interest rate backdrop, even at today’s prices, offers a comparatively strong risk-adjusted return.”

Ufi Ibrahim, CEO, British Hospitality Association: “The EU referendum question represented a profound moment for the future of our industry. Hospitality and tourism benefits from a flourishing economy and any level of uncertainty will have an impact. The U.K.’s withdrawal from the EU is the beginning of a process, which could take years.

“We will be framing a plan to ensure that we have a seat at the table on all negotiations including taxation, immigration and regulation. … (And) as we go through this process, the BHA will call upon every politician in this country to do all they can to guard the strong reputation that our industry has built.”

Sir James Devitt, managing director, Herald Hotels: “Hotel development has immediately become more problematic. I understand that construction companies will find it very difficult to price contracts and will suffer uncertainty in costs of materials and labor. This will have an immediate impact on the value of hotel development opportunities as the development risk has increased exponentially and the trading risk has also increased. I consider this to be a game changer and would not be surprised to see a number of hotel developments stall or need to seek new capital.

“It is logical that bank support will become both more difficult and more expensive to obtain. Lending already agreed should be secure, but new opportunities may take a while to get considered and conditions will be more severe. … There seems no doubt that hotel capital values have declined immediately and sharply as a result of Brexit. My immediate estimate is by 10%, but I will be getting a better handle on this over the next few days as hotels, which were in the market and with second-round bid dates post the vote, receive their second-round bids and deals with Brexit clauses get renegotiated or fall away. Smaller regional assets are likely to be impacted less, and some overseas investors will be encouraged by the weaker pound.”

Aaron Greenman, EVP, acquisitions and development, Europe, Interstate Hotels & Resorts: “At this stage, the effect of a U.K. or England-only departure from the EU is far from quantifiable, negatively or positively. It’s simply too early, and there are far too many political and economic variables. That is not to say that the uncertainty of the next two to three years and potential volatility will not alter the investor mix, prompting some to exit out of nervousness or impatience and others to enter seeking more of a value play.”

Ciarán Fahy, CEO, hotels division, Ellerman Investments Limited: “A hotel investment in London is a major long-term financial commitment that will only be taken after extensive feasibility and research over a period of time, and it can take a number of years to finance and develop the scheme and professional partnerships to get planning before a brick is laid. London, whatever the speculation on Brexit, will remain a leading global destination … Anyone who pulls an investment because of Brexit concerns is not a serious long-term hotel investor.

“Hoteliers can and will adapt to market conditions to ensure they continue to generate a return on their investment, as long as their revenue projections are realistic and based on a deep understanding of their location and competitive set.”

Roddy Watt, CEO, The Hotel Management Company & The Buell Group: “The impact of Brexit on U.K. hotel investment is very much in the balance. Immediate anecdotal comment indicates that a number of pending deals have either been put on hold or have been pulled completely. It would seem that the banks have gone into ‘wait and see’ mode, and this is likely to remain the case until there is more clarity around the real impacts of the Brexit decision. Action from Singapore’s UOB to halt all lending towards the purchase of London properties will inevitably impact Asian investment.

“On the positive side, in speaking to the chairman of one of the U.K.’s leading hotel property brokerages, the company had experienced two days of record trading in the immediate aftermath of the referendum. Inevitably, the investing community will have to take a deep breath and expect a slow pace in investment and (mergers and acquisitions) activity in the short term.”

Gordon Innes, CEO, London & Partners: “It is entirely possible that, emboldened by a mandate from the British people, a new U.K. prime minister can negotiate favorable terms for a future trading relationship with the EU and easy movement of tourists and skilled labor. It is entirely possible, too, that new trading relationships can be forged with economies that will be the powerhouses of world trade 20, 30, 40 years from now, which will open up new opportunities.

“London’s economic success is built on hundreds of years of international businesses, investors and skilled workers coming here to be part of the most open and dynamic city economy in the world. None of that changed … None of that will change over the next two years, and all of the terms of the U.K.’s exit from the EU are open for negotiation.”