The return of portfolio transactions has driven hotel investment in the UK during the first half, with deal activity rising to £3bn, according to Knight Frank.
The figure is up from £990m in the same period in 2023 and last year’s full-year total of £2bn.
Significant deals in the first half of the year include Blackstone’s £850m acquisition of the 33-asset regional Village Leisure portfolio, Starwood Capital Group’s £800m purchase of 10 Radisson Edwardian hotels in London and Landsec’s £400m disposal of its hotel portfolio to Ares Management, where Knight Frank advised the vendor.
Knight Frank’s analysis showed that H1 investment was just 10% lower than the equivalent pre-pandemic level in 2019, but activity has been dominated by the completion of a few sizeable portfolio transactions.
Portfolio transactions accounted for some 76% of the total H1 transaction volume, compared with 53% in H1 2019, when a similar level of portfolio transactions took place.
Researchers said the challenging investment market impacted the number of development and individual fixed-income deals that transacted. They added that, historically, hotel investment has been driven by a mix of sizeable portfolio and single-asset deals.
However, in the first half this year there was a “notable lack” of quality, single-asset hotels available for sale, resulting in a 19% decline year-on-year in the number of single-asset transactions and a 34% decline in the transaction volume.
London was the epicentre of activity during the first six months of the year, with some 70% of investment focused on the capital, driven by overseas investors accounting for acquisitions totalling £1.3bn. US investors dominated the landscape, accounting for 77% of total UK investment activity.
The outlook for H2 2024 was deemed “encouraging”, with momentum for investment in the UK hotel sector “continuing to build and benefitting from a diverse pool of well-capitalised investors”.
Levels of distressed sales are expected to remain “substantially lower” than in other cycles, although researchers said there was evidence to suggest stakeholders are increasing the pressure on owners to bring assets to the market.
The second half of 2024 is expected to yield further robust activity, with various other hotel portfolios likely to change hands and the number of single-asset opportunities coming to the market increasing, albeit of mixed quality.
However, Knight Frank added that while some sellers’ expectations have started to edge closer to buyers’ pricing levels, vendors are having to remain patient and bide their time to achieve their investment goals.
Henry Jackson, partner and head of hotel agency at Knight Frank, said: “The direction of travel for the sector is positive and the volume of portfolio transactions is evidence that the sector remains attractive. An increase in the quality and the number of hotels seeking to transact is expected, as hotel owners who have extended their investment cycles now seek to realise their exit strategies.
“Where a particular asset meets all the investment criteria, we have seen certain buyers willing to pay full prices for these assets. With a strong pipeline of hotels currently in legals, the Knight Frank Hotels teams expects this momentum to continue, and an interest rate cut will serve to further enhance the current optimism for investment in the UK hotel market.”
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