INVESTMENT ACTIVITY
The UK hotel investment market saw record-high transaction volumes in 2024 primarily driven by major portfolio deals such as Edwardian & Village. While Q1 2025 showed a 72% reduction in volume, a higher number of deals were recorded, totaling 28 individual transactions. Institutional buyers drove transaction activity in Q1 2025, accounting for 40% of total volumes. This reflects a shift from Q1 2024, when the market was primarily dominated by private buyers. The Upscale & Luxury segments led marginally in terms of market share (25% & 23%, respectively), though total volumes were down. Looking forward, single asset transactions are expected to dominate, supported by increased price alignment between buyers and sellers and fewer anticipated portfolio deals by year-end.
PRIME YIELDS
Prime yields in the UK hotel investment market remained stable throughout 2024, a trend that has continued into Q1 2025. While prime assets in high barrier to entry markets may have seen slight compression, yields are expected to sharpen gradually by year-end as interest rates improve and financing conditions stabilize.
SUPPLY & DEMAND
UK hotel supply has continued to grow, albeit at a slower rate than in previous years. In Q1 2025, 1,105 rooms have entered the market, leading to a 1.3% supply increase YoY, whilst demand has experienced a higher growth of 1.6%. There are currently 17,580 rooms under construction, a significant decline compared to 22,216 in Q1 2024, which is a positive for hotel trading performance. This decline reflects the continued pressure on construction costs and rising cost of labor. The regional market has been supported by the return of group and corporate segments which rebounded in 2024 and can be expected to continue alongside a growth in domestic leisure travel due to the increasing cost of travelling overseas.
PERFORMANCE
The UK experienced a slight decrease in top line growth as the post-covid boom stabilizes, with RevPAR levels down -1.1% compared to Q1 2024. Simultaneously, bottom line performance will continue to feel the effects of cost pressures, particularly payroll, which is expected to slightly impact profitability in 2025.
