Hotel deals in the U.K. have witnessed a significant jump in the first half of the year and have touched new levels since H1 2015. Half-yearly investment rocketed 201% to a total £3.9 billion ($5.03 billion) in the first half of the year compared to the same period last year, driven by several major private equity portfolio deals.
Investment in H1 surged by £2.6 billion ($3.35 million) compared to H1 2023, 132% from H1 2022 and 37% versus H1 2019. The impressive volume of hotel deals so far this year has proven the sector to be a leading asset class, outperforming office, retail, industrial, residential and PBSA deal volumes. The second half of the year is expected to see more deal activity and full-year volumes are likely to surpass £5 billion ($6.45 million).
The H1 volume covered nearly 200 properties, totaling 21,400 rooms, in the U.K. Investment interest in the hotel sector remains robust, the study noted, adding that this signals a reenergized U.K. hotel investment market following a period of weak activity.
The phenomenal deal activity in H1 was accelerated by portfolio deals, which constituted nearly two-thirds of the total investment. Some of the significant deals were the Radisson Edwardian Portfolio (10 hotels); Project Cobalt (LXi REIT Travelodge Portfolio, 66 hotels); Project Leopard (Landsec Accor Portfolio, 21 hotels); and the Village Hotels Portfolio (33 hotels).
Most of the deals were based in London, with the city accounting for 55% of major deals by volume. Beyond London, however, volumes reached £1.8 billion ($2.32 billion) primarily fueled by portfolio deals involving regional assets.
Portfolio deals emerged as the key driver of investment, driven mostly by the exits of owners of larger platforms for strategic reasons that meet the market of opportunistic funds seeking large-scale acquisitions. In contrast, the single asset or core-plus market has seen sellers holding out for higher prices.
Majority of the volume (70%) was contributed by American and European investors. Additional deployment of international capital is expected in the second half of the year due to a comparatively higher political and economic clarity with the conclusion of the general elections.
Yields were mostly stable, with marginal compression for top-tier deals in high-barrier-to-entry markets. Upscale and upper upscale hotels continued to generate the most investment, reflecting a focus on high-quality assets.
However, the deal market is still characterized by ongoing polarization, the study said. Big strategic deals and smaller private deals continue with available liquidity. Mid-market deals are being affected by major gaps between what buyers are willing to pay and what sellers are asking for.
Hotel operators and investors are confident of the growth in top-line in 2025, with forecasts for the next 12 months projecting RevPAR growth of 3.8% in London. Cost pressures will continue with rising living wages, although this is partially offset by easing utilities costs. Edinburgh has been a standout market, with the trailing 12 months to June 2024 GOP per available room almost 30% higher compared to 2019.
“Hospitality continues to prove itself a robust performer, with strong topline growth and easing cost pressures, and this in turn continues to attract investor interest. The sector is on track to record very healthy transaction volumes in 2024, driven by a handful of key portfolio deals which have been hard to come by in recent years,” said Ed Fitch, head of hospitality U.K. & Ireland at Cushman & Wakefield. “There is a great depth of capital waiting to get into the hospitality sector which Cushman & Wakefield expects to sustain deal momentum throughout the year and into 2025 as more product that meets the criteria of that capital come to market.”
Going forward, the market is estimated to have sustained positive sentiment for the sector driven by better national business and consumer confidence indexes up 45 points and 32 points since 2022-end.
International arrivals to the U.K. are projected to remain strong, with total numbers likely to climb by nearly 50% over a 10-year horizon. Nights in hostels are expected to rise by nearly 7% YOY by the end of this year. Arrivals from China are projected to balloon by 380% in this period.
Occupancy across the U.K. stood at 77.4% in the 12 months trailing June 2024, helped by lowering cost of living concerns, improved leisure travel volume, steady recovery of corporates and resurgence of cross-continental travel.
The latter half of this year is expected to see strong activity, Cushman & Wakefield said, adding that additional hotel portfolios will appear to test the market. Although single-asset deals have been subdued in H1, deal flow in the second half of the year will be propelled in part by refinancing pressures, inward movement in interest rates and greater pricing clarity bringing buyers and sellers closer, especially as we inch closer to the new year.
