UK: Research from property advisor Knight Frank shows that UK hotel transactions for 2022 sit at around 30 per cent below the five-year average.
The first half of 2022 accounted for 68 per cent (£2.1 billion) of the total annual UK hotel investment.
As a result of the war in Ukraine combined with global economic uncertainty and domestic political turmoil, the latter half of 2022 saw reduced levels of investment.
Surges in energy costs, increased payroll and operational costs, a hike in interest rates which led to a rise in the cost of debt, all contributed to a lull in activity with many deals falling away.
More than 19,000 rooms also permanently closed over the last two years, and coupled with slower growth in hotel development pipelines, Knight Frank believes this has created a favourable backdrop for future investment.
However, subdued levels of stock is anticipated as a result of the Home Office providing contracts to some hotel owners which will limit supply coming to market. In turn, competition for assets will increase and Knight Frank also expects to see a revival in the number of portfolios being marketed.
Henry Jackson, partner and head of hotel agency at Knight Frank, said: “Whilst no hotel business is immune to the effects of an economic downturn, and whilst profit margins are likely to be squeezed in the short-term, operationally the sector has continued its recovery and an upturn in investment levels for 2023 is anticipated.
“We have seen an uptick in investor activity at the end of 2022 and purchasers who are proactively seeking out opportunities now are well placed to move quickly when new stock becomes available. Investors are showing renewed signs of confidence in the London hotel market, with overseas purchasers benefitting from currency plays.
“Once the economic picture is clearer and the availability of debt recalibrates, we expect transactional activity during 2023 to rebound at a more buoyant pace, exceeding 2022 levels. With hotel property offering value and resilience relative to other real estate asset classes, a wide range of investor types will seek to deploy capital into the sector.”
