2021 has seen £4bn invested in UK hotels, proving the resilience and long-term well-being of the sector
- 52% of annual deals were finalized in the last quarter as the UK’s roadmap out of the pandemic boosted confidence
- Stays drove regional markets with 46% of hotels transacting in the UK region, located in coastal, rural or private areas
- Increase in wallet transaction volumes expected in 2022, driving transactional activity in the UK region
The UK hotel market has seen investment volumes reach an impressive £4 billion in 2021, representing growing investor optimism about the sector’s long-term prospects, according to the latest UK Hotel Capital Markets: Investment Review. 2022 by leading global real estate advisor Knight Frank.
Despite the disruptive implications of coronavirus on the UK hospitality industry and despite the temporary setback of the Omicron variant, the underlying drivers of increased hotel demand, continued improvement in profitability and visibility for trade futures, have all helped improve investor and lender sentiment towards the sector.
Following the uncertainty throughout 2020, the government’s announcement of a non-lockdown roadmap allowed hotel investment to gradually rebound in 2021 as confidence improved. Hotel transaction volumes more than doubled in 2021, increasing by more than £2 billion on the previous year. 52% of the annual volume of transactions completed in the last quarter of the year, illustrating the renewed investor confidence throughout the summer and autumn months due to better trading performance.
Research from Knight Frank reveals that the composition of transaction activity in 2021 has changed significantly from historical trends. In total, some 150 single-asset hotel transactions have taken place in the UK with an indicative price of over £2 million, or around £1.9 billion. This reflects a 58% increase in the number of unique asset transactions and a 46% increase in transaction volume, compared to 2019. This represents the highest level of unique asset activity since the record year. for hotel investment in 2015.
The liquidity position and access to capital has been a driving factor for many owners and operators, with the protracted crisis forcing many experienced owner-operators to choose retirement and/or exit the industry. For others, decisive action has led to various hotels changing hands, with owners taking steps to reduce debt, support cash flow or raise capital to invest in their wider portfolio. Strong domestic leisure demand further boosted hotel transactions, with an exceptional level of distinctive assets sold.
Knight Frank remains cautiously optimistic for 2022, anticipating that deal activity will be driven by a range of factors, including a higher level of asset turnover as investors prioritize stalled exit plans or bring new assets to the market. market, to take advantage of the recovery in investment. cycle. A funding-induced increase in sales is also expected, but according to Knight Frank, this does not necessarily mean distress. Instead, lenders will exercise greater control over their loan portfolios, encouraging homeowners to review their debt levels and focus on investment plans that will bring the best returns.
Henry Jackson, Head of Hospitality Agency at Knight Frank, said: “With the flipside of the Omicron variant now over, the strong wave of transactional activity that occurred in the last quarter of 2021 is expected to continue in the coming months. Investments are attracted by a long period of uninterrupted transactions in 2022, improving debt markets and attractive sector diversification, with prime assets offering strong liquidity and strong market competition.
“UK stays should continue to drive regional performance, and the return of international travelers will further improve the business performance of London and city center hotels across the UK. As the sector faces a sustained period of economic pressure, current market dynamics should ensure a positive year for the UK hotel transaction market, with volumes expected to reach £5 billion in 2022.”
With considerable capital available for hotels located in strong stay markets, some 46% of hotels that transacted in the UK region in 2021 were located in a rural/coastal/resort or estate setting. private, which equates to approximately £600 million in trading volume. Knight Frank further reported over £625m of independent hotels transacting in the UK region, a 385% increase over transaction volumes in 2019.
Philippa Goldstein, Principal Analyst, Head of Hotel Research at Knight Frank, said:
“The appetite for hotel investment seen in the last quarter of 2021 speaks to the level of interest and available capital from well-funded investors keen to establish a presence in a sector that has proven its resilience. Going forward, investors need to be increasingly mindful of the various headwinds affecting the hotel industry.The pandemic has forced owners and operators to fully understand the cost structure and effectively manage a hotel’s cash flow. current inflationary environment, this will further encourage operators to think creatively about increasing efficiency to help maintain or improve margins.”
London and the regional UK continue to offer attractive long-term returns to global and domestic investors, with hotel transaction volumes in the capital reaching £2.1bn in 2021, representing 54% of the total transactions in the UK. Some 74% of foreign investment went to London, which accounted for 51% of total London hotel investment volume. With an increase in portfolio transaction volumes expected in 2022, the regional UK should see its share of investment activity pick up, along with an increase in investment from overseas investors for the year ahead.
For more information, please contact
Ella Fabregat, Partner, Commercial Public Relations Manager, +44 20 3897 0044
Laura Jeffery, Commercial Public Relations Manager, +44 20 3869 4714
Knight Frank LLP is the leading independent global real estate advisory firm, serving as a real estate partner to our clients for 125 years. Based in London, Knight Frank has over 20,000 people operating from 488 offices in 57 territories. The Group advises clients ranging from individual owners and buyers to large developers, investors and corporate tenants. For more information about the firm, visit knightfrank.com