UK hotel transactions fell by 27.5% to £3bn in 2022 compared with the previous year, according to research from Savills.
Volumes were up 16.9% in H1 year-on-year but were 61% lower in the second half compared with the same period in 2021, on the back of macroeconomic woes, said Savills.
The findings showed activity outside of London was relatively more resilient, driven by the staycation market. Year-end volumes fell to £2bn, down 2.1% year-on-year.
However, Savills observed that stability is starting to return to the market, with around £500m of hotel deals expected to complete this month.
Savills director and head of UK hotel capital markets Rob Stapleton said: “Last year can be summarised as a tale of two halves, where volumes in the first half were up 16.9% year-on-year and 61% lower in the second half of the year, year-on-year, as rising debt costs and a weakening economic outlook caused activity to slow.”
Notable deals in 2022 included Tristan Capital Partners’ acquisition of Point A Hotels from Raag Hotels for around £420m, Fortress Investment Group’s acquisition of PREM Group and KSL Capital Partners acquisition of the Pig Hotel Group from Home Grown Hotels.
Stapleton added that those platforms “all offer significant scope for expansion and sit in the highest performing and most resilient segments in our industry”.
Savills head of UK hotels Tim Stoyle said: “While the second half of the year has been challenging in terms of transactional activity, we are seeing stability starting to return to the market as we begin the new year.
“There are approximately £500m worth of hotel assets expected to complete in January that we are aware of, which would be a positive start to the year and marks the intentions of investors as they look to deploy capital into attractive opportunities. Additionally, the business rate revaluation that comes into effect in April 2023 will provide some respite to hotels.”
Findings by Knight Frank similarly found that £3bn of hotel transactions took place during 2022, falling from £4bn in the previous year.
However, researchers predicted an upturn for hotel investment this year, highlighting recovery in hotel trading performance as well as “renewed” signs of confidence from investors.
The total annual investment volume was around 30% below a five-year average.
Researchers at Knight Frank predicted distressed sales for the year ahead, as well as subdued levels of stock becoming available over the coming year and increasing competition for assets. They also anticipated a revival in the number of hotel portfolios being marketed next year.
Despite subdued investor sentiment, researchers said there was strong growth and recovery where hotel trading was concerned.
More than 19,000 rooms closed permanently over the past two years because of the pandemic. Knight Frank said that, along with slower growth in the hotel development pipeline, has created a “favourable backdrop for future investment”, with the sector in a “strong position” to navigate macroeconomic uncertainty.
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.”
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