Investment in UK hotels at lowest level since 2012

Investment levels in UK hotels were at their lowest since 2012 last year as the rising cost of debt and elevated operating costs hit investor confidence.

Total annual investment volume of UK hotel transactions stood at £2b in 2023, which was 37% down on 2022 and 57% lower than the ten year average (excluding Covid-hit 2020), according to property advisor Knight Frank.

The first quarter of 2023 accounted for 29% of total annual investment, followed by a significant reduction in investment during Q2 and Q3. In Q4 2023 the figures were boosted by the sale of the two Hoxton hotels to Archer Hotel Capital for £215m.

In the capital the strong brand recognition of hotel assets combined with high rom rates has seen London’s hotel values per room increase by 22% year-on-year.

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.”