Investment in UK hotels rose 201% in the first half, Cushman & Wakefield finds

UK hotel deals saw significant growth in the first half of the year and have reached new highs since the first half of 2015. Half-yearly investment increased by 201% to a total of £3.9bn (£5.03bn of dollars) in the first half of the year. compared to the same period last year, driven by several major private equity portfolio transactions.

Investments in the first half increased by £2.6 billion ($3.35 million) compared to H1 2023, 132% compared to S1 2022 and 37% compared to S1 2019. The impressive volume of hotel deals so far in this year has proven that the sector is a leading asset class. exceeding office, retail, industrial, residential and PBSA transaction volumes. The second half of the year is expected to see more transaction activity, with full-year volumes likely to exceed 5 billion pounds ($6.45 million).

Volume S1 covered nearly 200 properties, totaling 21,400 rooms, across the UK. Investment interest in the hotel sector remains robust, the study said, adding that this signals a reinvigorated UK hotel investment market after a period of weak activity.

The phenomenal deal activity in H1 was fueled by portfolio deals, which made up nearly two-thirds of total investment. Some of the significant deals were the Radisson Edwardian portfolio (10 hotels); Project Cobalt (Portfolio LXi REIT Travelodge, 66 hotels); Leopard Project (Landsec Accor Portfolio, 21 hotels); and the Village Hotel Portfolio (33 hotels).

The majority of transactions were based in London, with the city accounting for 55% of major transaction volume. Beyond London, however, volumes reached 1.8 billion pounds ($2.32 billion), fueled mainly by portfolio deals involving regional assets.

Portfolio deals have emerged as the key driver of investment, driven mainly by the exits of larger platform holders for strategic reasons meeting the market of opportunistic funds seeking large-scale acquisitions. In contrast, the single asset or core-plus market saw sellers holding on to higher prices.

Most of the volume (70%) was contributed by American and European investors. Further deployment of international capital is expected in the second half of the year due to comparatively higher political and economic clarity with the conclusion of general elections.

Yields were mostly flat, with marginal compression for top deals in markets with high barriers to entry. Upscale and luxury hotels continued to generate the most investment, reflecting a focus on high-quality assets.

However, the transaction market is still characterized by continued polarization, the study says. Large strategic deals and smaller private deals continue with available liquidity. Mid-market deals are affected by major differences between what buyers are willing to pay and what sellers are asking.

Hotel operators and investors are confident of top line growth in 2025, with forecasts for the next 12 months projecting RevPAR growth of 3.8% in London. Cost pressures will continue as living wages rise, although this is partly offset by lower utility costs. Edinburgh was a standout market, with the 12 months to June 2024 GOP per room available almost 30% higher than in 2019.

“Hospitality continues to prove a robust performer, with strong growth and reduced cost pressures, and this continues to attract investor interest. The sector is on track to see very healthy deal volumes in 2024, driven by some key portfolio deals that have been difficult to come by in recent years,” said Ed Fitch, UK & Ireland Head of Hospitality at Cushman & Wakefield. “There is great depth of capital waiting to enter the hospitality sector, which Cushman & Wakefield expects to maintain transaction momentum throughout the year and into 2025 as more products that meet the criteria for that capital come to market.”

Going forward, the market is forecast to have sustained positive sentiment for the sector, driven by better national business and consumer confidence indices, up 45 points and 32 points from the end of 2022.

International arrivals to the UK are forecast to remain strong, with total numbers likely to increase by almost 50% over a 10-year horizon. Bed and breakfast nights are expected to increase by nearly 7% over last year by the end of this year. Arrivals from China are expected to increase by 380% during this period.

UK occupancy was 77.4% in the 12 months to June 2024, helped by the reduction in the cost of living, increased leisure travel, steady business recovery and the resurgence of transcontinental travel.

The second half of this year is expected to see strong activity, Cushman & Wakefield said, adding that additional hotel portfolios will emerge to test the market. Although single-asset deals were subdued in the first half, deal flow in the second half of the year will be driven in part by refinancing pressures, inward interest rate movements and greater price clarity, bringing buyers and sellers closer, especially as we approach the New Year.