Strong 2021 for single asset UK hotel deals

Record-breaking 2021 for single asset UK hotel deals

St Ives, Cornwall [Credit: Simon Godfrey on Unsplash]

UK: According to Knight Frank, £4 billion was invested into the UK hotel market in 2021 with transactions more than doubling since the previous year.

Research by Knight Frank reveals that 52 per cent of the annual transaction volume was completed during the final quarter of the year, indicating that investors were confident in the strong trading performances shown throughout summer and autumn.

150 single asset hotel transactions took place with a guide price of over £2 million (total £1.9 billion), representing the highest level of single asset activity for hotel investment since 2015. 

Portfolio activity in 2021 accounted for just 23 per cent of the total UK hotel transaction volume.

Around 46 per cent hotels which transacted in regional UK were located in rural/coastal/resort or private estate setting (approx £600 million of the total volume). Over £625 million of independently operated hotels transacted in regional UK, a 358 per cent increase compared to 2019.

In London, transaction volumes reached £2.1 billion, accounting for 54 per cent share of the total. Some 74 per cent of overseas investment was targeted toward London, representing 51 per cent of the capital’s total investment volume. 

Knight Frank anticipates that transactional activity this year will be driven by a greater level of asset rotation as investors prioritise stalled exit plans or bring new assets to market. An increase in funding-led sales are also expected, but not necessarily leading to distress. 

Henry Jackson, head of hotel agency at Knight Frank, said: “With the setback of the Omicron variant having now passed, the strong flurry of transactional activity that occurred during the final quarter of 2021 is expected to continue in the months ahead. Investment is being lured by an extended period of uninterrupted trading in 2022, improving debt markets and attractive sector diversification, with best in class assets offering strong liquidity and competition in the market.

“Staycations in the UK are expected to continue boosting regional performance, and the return of international travellers will further enhance trading performance in London and city centre hotels throughout the UK. Whilst the sector is facing a sustained period of economic pressures, current market dynamics are likely to ensure a positive year ahead for the UK hotel transactional market, with volumes anticipated to rise to £5 billion in 2022.”

Philippa Goldstein, senior analyst, head of hotel research at Knight Frank, said: “The appetite for hotel investment witnessed during the final quarter of 2021 is testament to the level of interest and capital available from well-funded investors eager to establish a presence in a sector that has proven its resilience.

“Looking ahead investors must remain increasingly alert to the various headwinds affecting the hotel sector. The pandemic forced owners and operators to properly understand the cost structure and manage a hotel’s cashflow effectively. With the current inflationary environment, this will further encourage operators to think creatively about increasing efficiency to help maintain or improve margins.”

The UK Hotel Capital Markets: Investment Review 2022 report can be read in full here.

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