Hotel investment on the rise with market set for bumper fourth quarter

The outlook for the hotel investment market remains relatively strong, with a large amount of equity in the market ready to be deployed, according to real estate adviser Savills.

UK hotel investment volumes this year so far reached £2.66b, up 18.7% compared to the full-year 2020 volumes, and Savills forecasted a further £1.34b worth of hotel assets could be transacted in the final quarter, bringing 2021 year-end volumes to around £4b, close to the 15-year average of £4.22b, while up 78.2% compared to 2020 volumes.

UK hotel transactions reached £935.1m in the third quarter of this year, more than treble the volume recorded in Q3 of 2020, and up 20.6% compared to Q3 2019. Strong demand since reopening has meant that both Q2 and Q3 2021 volumes exceeded the corresponding quarters in 2019. However, due to a slow opening quarter of the year, year to date volumes remained down -25.2% compared to 2019 equivalent levels.

Tim Stoyle, head of UK hotels at Savills, said: “Following what was a slow start to the year we have experienced strong positive momentum for hotel investments and expect to finish the year over 78% ahead of 2020 volumes. Investors continue to remain positive as the staycation market boosts regional performance and the return of international travellers providing a welcome boost to our city centre hotels. We expect much of the capital that has been raised to be deployed in the sector as confidence in the outlook of the sector grows.”

Demand for regional assets continued, accounting for 65.6% of total volumes for the year to date. Two major portfolio deals formed a great deal of this, including Blackstone’s acquisition of Bourne Leisure and Henderson Park acquiring a UK-wide Hilton portfolio.

London dominated single asset hotel transactions, accounting for two-thirds of total UK single asset volumes, equalling approximately £890m. This represented a 59.3% increase compared to 2019 volumes over the same period and demonstrated the continued level of investor appetite for prime London assets.

Rob Stapleton, director in Savills’ hotel capital markets team, said: “As traveller sentiment continues to improve and the economy opens up, London is set to be a major beneficiary. Investors continue to be drawn to prime assets and with limited stock and high levels of liquidity in the market we expect strong demand and competition for the best assets.”

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