UK hotel investment transactions fell to £2bn in 2023 – down 37% on the previous year and 57% lower than the 10-year average, according to new data from Knight Frank.
Excluding the Covid-impacted year of 2020, investment levels were at their lowest since 2012, due to the rising cost of debt, elevated operational costs and a ‘widening mismatch between buyer and seller price expectation’.
Q4 was the strongest quarter of the year for investment into the sector with £615m of deals completing – equivalent to 31% of annual investment activity.
Foreign investment in 2023 totalled more than £760m, with activity from investors in continental European recording an annual uplift of 40% to more than £350m. Capital sourced from the Middle East and Asia also increased.
Knight Frank said that although deals are taking longer to transact the pick-up in activity in Q4 is expected to continue into 2024 as the economic picture brightens.
Henry Jackson, partner and head of hotel agency at Knight Frank, said: “We have seen an encouraging uptick in investor activity at the end of 2023, with demand for London hotel assets particularly positive. Geopolitical tensions have potential to limit overseas capital flows, and the upcoming UK and US elections are likely to weigh in on investment decisions.
“Yet, 2024 is expected to be a pivotal year, we anticipate that with the higher yields associated with operational real estate and the living sector driving an increasing allocation of capital, hotel investment will recover at a more buoyant pace as the year progresses. Hotel property continues to offer value and diversification of risk, and with hotel yields stabilising and trading expected to maintain its momentum despite low economic growth forecast, we envisage a greater volume of diversified capital to be deployed into the sector in 2024.”
