Hotel Market Beat H1 2023 - UK
UK hotel transaction volumes have remained resilient in the first half of 2023 despite market headwinds, supported by the private markets (with sub-£15M ticket sizes) and value-add opportunities with compelling growth stories. Further volumes have been supported by office conversions, with hotels stacking up in the right locations.
We anticipate an uptick in activity at the back end of the year, with the closing of a number of key trades in Q3 and Q4 as well as several significant assets expected to be brought to market. The Bid:Ask spread is starting to see signs of more convergence, supported by a plateauing of the cost of debt and a general shift from a “wait and see” attitude toward more active decision-making from both buyers and sellers. This will be fuelled by a clearer view of full-year 2023 trading and continued confidence in the hotel market, especially compared with other asset classes.
Yields remain in a grey area, with evidence found more so in bids on failed processes than actual trades. However, sentiment remains that yields have moved out by 75-150 bps. A lack of trades has resulted in a dearth of direct transactional evidence and a sluggishness to the ongoing pricing and valuation shift. That said, in times of uncertainty, a flight to quality persists, holding yields for the best of the best, and driving competition for prime assets.
As of June 2023, the last twelve-months ADR stood at £115, 22% ahead of 2019 levels (+2.3% real growth). Occupancy sits 100 bps behind at 76.7%, but this is forecast to be on par with 2019 by year-end 2023. The spread between RevPAR and GOPPAR growth has widened since pre-COVID as a result of upward pressure on the cost base. However, H1 has seen this cost base remain relatively stable, suggesting that market forces are beginning to come into effect.
It is currently difficult to ascertain the real room supply due to alternative usage of hotels for displaced individuals, especially in certain markets. This must be taken on a market-by-market basis with some more exposed than others. Supply previously delayed is starting to come online, with some markets feeling the pressure as room supply grows significantly. That said, the UK’s ability to absorb growing supply has been effective in the past.
Overnights in hotels are expected to be on par with 2019 levels, with domestic overnight 13% above and international 10% behind. As inflation continues and mortgage rates flow throughout the next 4 years, curbed consumer spending is expected. However, this drop-off can be expected to be counteracted by recovering international demand, especially cross-continental.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more.
For additional information, visit www.cushmanwakefield.com
Ed Fitch
Head of Hospitality UK&I
Cushman & Wakefield
