Three-fold annual rise in 2024 hotel investment, to £6.3 bn
6 minutes to read
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Transaction volumes return to 2019 levels.
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Portfolio deals dominated, equating to 57% of total transaction volume.
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Overseas investment accounts for 75% share of activity.
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Volume of single asset transactions just 7% ahead of 2023 levels.
Annual hotel investment returned to more normalised levels, but with the make-up of deals significantly different from pre-pandemic levels, according to leading global property advisor Knight Frank, with portfolio transactions representing 57% of total investment, equating to more than £3.6 billion of deals.
Having seen annual investment volumes decline for three consecutive years since 2021, the appeal for the UK hospitality sector, underpinned by the robust recovery in hotel operational performance, strong demand fundamentals, and improving investor confidence with the downward trajectory of interest rates, all supported the significant upswing in 2024 investment levels. With a total transaction volume of £6.3 billion in 2024, annual hotel investment once again returned to positive territory, some 31% ahead of the ten-year average.
Sizeable portfolio deals, which included the 33 Village Leisure hotels, 10 Radisson Edwardian Hotels, Landsec’s disposal of its 21 AccorInvest hotel portfolio (for which Knight Frank acted on behalf of the vendor), the 66 Travelodge hotels which formed the LXi REIT portfolio, and a collection of 33 Marriott hotels which comprised the ADIA UK portfolio, resulted in over 20,000 hotel bedrooms being acquired by either Private Equity or overseas institutional buyers. With these deals completing at different stages throughout the year, quarterly investment levels were relatively equally robust, except for the summer months of Q3 being notably quieter. As such, investment volumes during the first six months of the year were stronger, having accounted for some 59% of total investment activity.
London recorded £3.1 billion of investment for the year, which at 50% share of total activity is representative of historical levels. Portfolio transactions dominated the London investment landscape representing more than half of the annual investment. Single asset hotels represented just 25% of London’s deal volume, which is not unusual in a year where portfolio transactions dominated. Some of the most sizeable hotels to exchange hands included Six Senses London (£180 million), The Standard (£185 million), Hyatt Place London City East (£84 million) and Motel One London Tower Hill (£56 million). Strong demand for high-quality, single asset London hotels has seen their value per room increase by 8% year-on-year, averaging £417,000 per key.
In total, some £1.2 billion of single asset investment1 took place throughout the UK in 2024, with investment up just 7% on 2023 levels. London’s share of the total UK single asset activity equated to 63%, which is strikingly high compared to historical levels. This illustrates the low level of sizeable single asset transactions in regional UK, of which there were just nine hotels transacting at or above £10 million, with activity thwarted by the high cost of debt, limited distress, and continued divergence between buyers and sellers pricing expectations.
Supporting investment volumes, was the strong rise in fixed income investment deals, which accounted for 26% of total UK hotel investment, of which institutional buyers accounted for some 70% of the capital invested. Whilst portfolio transactions accounted for 40% of the activity, excluding these from the deal count, there has been a clear trend whereby more institutional capital has exited the sector than invested. Redemptions, strict rules in terms of investment risk and ESG criteria and realignment of sector exposure have resulted in hotel fixed lease investment stock coming to the market for disposal. Ground rent deals have also featured more strongly than in recent years, with simultaneous tri-partite deals taking place, with the capital from the ground rent providing the mechanism to finance the deal.
Whilst the volume of development transactions has increased year-on-year, it remains somewhat below pre-pandemic levels, with the cost of development finance and construction prohibitive to many schemes. Yet, the trend for the repurposing of poorer quality office buildings in peripheral locations or the adaptive reuse of strategically important buildings in the heart of city centres, to a hotel has continued, supported by positive sentiment towards hotel conversions by planning authorities.
Criterion Capital’s acquisition of Edinburgh’s former Debenhams Store is one such example of a comprehensive £50 million retrofit, with plans to transform the building into the first Zedwell hotel in Scotland. Whitbread has also dominated in this arena, taking on both planning and development risk to secure sites in strong locations, by successfully recycling capital into the business, through the sale and leaseback of a select number of its freehold trading assets. One such development project includes the freehold acquisition of Verity House, a 42,000 sq ft office building for redevelopment into a 120-bedroom Premier Inn. Another example is Travelodge’s acquisition of the office block Genesis House, near St Paul’s Cathedral, where planning permission is being sought for a 95-bedroom hotel. Whilst many lenders are averse to taking planning risk, well capitalised operators are freeing up capital and investing their own equity, to fuel ambitious future growth targets.
Hotel development transactions are estimated to have totalled over £500 million in 2024, representing 8% of total UK hotel investment.
Despite rising costs, in most markets trading has been strong, with income levels returning to acceptable levels post the pandemic. This recovery, combined with relatively stable supply levels, has led to very limited distress, and combined with lenders keen to work with borrowers to refinance at more favourable terms, this has resulted in few, quality single assets listed for sale. Yet, smart capital has succeeded to seek out opportunistic hotel deals throughout 2024, with the UK remaining highly attractive to overseas investors, which accounted for £4.7 billion of the annual investment in the sector. Private Equity originating from overseas contributed to more than half of this investment, totalling some £2.6 billion. By far the most active capital came from the USA, which despite being an election year, contributed over £3.8 billion of investment into the UK hotel sector.
Following the reaction to measures announced in the autumn budget and Donald Trump’s victory in the 2024 US Presidential election, there is scope for increased market volatility in 2025. Economists are now forecasting annual CPI inflation rate to remain above target at around 2.6%, and in response to the lingering inflation, gilt rates have edged upwards, and the Bank of England is expected to maintain its ‘gradual’ easing stance over a longer term. Furthermore, with Trump’s call for a weaker dollar to make the US more competitive, outbound investment is set to become more expensive.
As UK GDP growth picks up, albeit from a low base, investor sentiment towards the sector is expected to remain strong, with this asset class having demonstrated strong operational resilience and proven as a robust inflationary hedge. With interest rates expected to continue their downward trajectory, opportunity for some yield compression is anticipated. And, with traditional lenders extending their loan books for the sector in 2025, the increased availability of debt for those assets which meet rigorous lending criteria, this bodes well for hotel investment in the months ahead.
Henry Jackson, Partner and Head of Hotel Agency at Knight Frank, said: "Whilst a steady flow of portfolio transactions is likely to continue, we expect there to be an improving equilibrium, with greater momentum and opportunity for single asset deals. We continue to see strong demand from investors for well-located assets which are trading strongly and deemed a strategic fit within their existing portfolio. Attractively priced, under-invested assets are likely to feature more strongly as the cost of borrowing reduces. Capital from Private Equity is expected to continue to dominate, but we anticipate a greater volume of diversified capital to be deployed into the sector in 2025.”