60 Second Property Digest – UK hotel investment set to rebound in 2023

Knight Frank’s latest research records some £3 billion of hotel transactions to have taken place in 2022, some 30% below the five-year average, with the economic uncertainty stalling UK hotel investment volumes.

Investment in 2022

UK hotel transactions saw a robust first half of the year, accounting for 68% of total annual investment. However, the volatility that arose from the war in Ukraine, global economic uncertainty, and domestic political turmoil which followed, are all factors contributing to the reduced investment levels, with several deals having failed to complete.

However, this subdued investor sentiment contrasts with the strong growth and recovery of hotel trading performance in 2022, with RevPAR growth of 3.3% and 3.9% recorded for London and regional UK respectively (April to November 2022, versus the same period in 2019) reinforcing the resilience of the UK hotel sector.

In the short-term, stock levels are anticipated to remain subdued, with little in the way of distressed sales and with government Home-Office contracts providing some owners attractive, alternative short-term income streams.

Transactions to rise in 2023

We have seen an uptick in investor activity at the end of 2022, with some £500 million of asset sales likely to complete early in 2023, and purchasers who are proactive and knowledgeable of the marketplace, are well placed to move quickly when opportunities do arise.

Once the economic picture is clearer and the availability and quantum of debt recalibrates, we expect transactional activity during 2023 to rebound at a more buoyant pace, exceeding 2022 levels - with a greater number of higher valued assets and a revival of select hotel portfolios being marketed for sale.