UK hotel investment transaction volumes were 31% below the five-year average last year and 22% below the 2021 figure, but according to the latest research from Knight Frank, the sector should see stronger levels of investment activity this year.
In 2022, lower levels of sizeable assets transacted, but there was an increase in the volume of transactions of lower valued stock in the annual £3bn figure, with 76% of single asset hotels transacting below £10m and an average lot size of £4.3m.
With a milder and shorter economic downturn now anticipated, combined with VisitBritain forecasting 35.1m inbound visits to the UK in 2023 – 18% higher than in the previous 12 months – Knight Frank said there is “encouraging momentum” in the UK hotel sector and it predicts the market for hotel assets will become increasingly active this year.
The company added “there remains no shortage of buyers seeking hotels which offer value add opportunities and with many hoteliers having benefitted from robust trading off the back of a strong leisure market, more stock is likely to come available as exit strategies are deployed”. It said 2023 had already got off to a strong start with more than £230m of hotel investment transactions already completed.
Henry Jackson, head of hotel agency at Knight Frank, said: “As confidence in the direction of the UK economy is further restored, there will come a greater urgency and decisiveness to execute a transaction. Currently, a heightened level of price sensitivity continues, yet the lack of quality branded stock available may serve to increase competition for assets, thereby protecting or even driving-up values in the short-term. Narrowing the gap between buyer and seller expectations, as well as securing affordable and sufficient debt to reach a positive outcome for both parties, remain key challenges.”
Philippa Goldstein, head of hotel research at Knight Frank, added: “We do not anticipate a significant volume of distressed assets coming to the market, particularly with ongoing government contracts in place and the rebase of business rates serving to help alleviate the hike in energy costs. Hotel transactional volumes are expected to remain constrained during the first six months of 2023, buyers not dependent on debt to execute a transaction are likely to be most active. Those deals which do complete are likely to be from buyers often driven by emotive reasons, or familiar with the market and consider there to be a long-term play.”
