‘Significant investor appetite’ building for hotel deals

Hotel transaction volumes hit £860m in the first six months of 2023, a drop of 60% compared to last year, according research from property firm Knight Frank.

The study showed that private equity investors were “mostly absent” for the first half of 2023, but said they were likely to bounce back “once the economic outlook becomes more certain”.

The number of institutional investors in the market has also reduced amid interest rate rises and tougher fire and safety regulations, which the study said made finding hotel assets more difficult.

However, specialist hotel-focused investors, high-net-worth individuals (HNWI) and family offices have contributed towards 70% of the transaction volume, completing £600m worth of deals with an average transaction price per room of £273,000, 75% higher than the UK average.

Overseas investors made up 41% of the transaction volume over the same period, predominantly from Europe, Middle East and Asia. These regions had benefitted from comparatively lower interest rates and favourable exchange rates.

Knight Frank anticipated that the next six months will lead to “more robust levels of investment activity”, as well as increases in selective asset sales.

It comes as benchmarking data from HotStats reported that London’s revpar (revenue per available room) performance was 50% higher for the first five months of 2023 compared to the same period over 2022.

Regional hotels saw a 20% increase in revpar compared to May 2022, while London’s average daily rate (ADR) was tracking above inflation.

Research from Savills also revealed that the London luxury segment was performing particularly well, with ADR at 31.9% at the end of 2022, while serviced apartments were becoming more attractive to investors and lenders due to the “leaner model and lower staffing requirements”.

Rob Stapleton, head of UK hotel capital markets at Savills, said: “We have seen momentum building during the first half of the year, as operational performance has continued to improve. There is significant investor appetite and a willingness to do deals, both on the vendor and purchaser side, where the requirements and returns align. With the volume of transactions currently on the market and also being readied for sale, a narrowing bid-ask spread will facilitate greater volumes of transactions in the second half of the year.”

Henry Jackson, head of hotel agency and partner at Knight Frank, added: “HNWI and family offices are certainly becoming more active in the sector and with the increasing cost of debt finance they can outbid other types of buyers. Where assets have been operating exceptionally well, we are seeing competitively priced assets attract multiple strong offers, proof that capital is readily available where investors can see value.”