UK hotel investment declines 70 per cent in 2020

UK: Knight Frank’s Hotel Transaction Trends 2021 research reveals that investment volumes in 2020 reached £1.8 billion in the United Kingdom compared to £6 billion in 2019, with 81 per cent of the transaction volume occurring in quarter one.

London accounted for 76 per cent of the total UK volume, however witnessed a decline of 49 per cent in transaction volume. The sale of The Ritz contributed £750 million to the capital’s total investment of £1.4 billion.

Even though overseas investment declined by 44 per cent, Qatari, Israeli, USA, Singaporean, Thai and European investors accounted for 63 per cent of the total UK hotel deals.

The main drivers for most UK transactions throughout 2020 were retirement sales, hotels sold for alternative use, non-core assets sold to bolster equity, and non-alignment of shareholder interests. These single asset sales were predominantly independently owner-operated, and were smaller sized and lower in value than traditional branded assets which would transact under normal trading conditions.

Henry Jackson, head of hotel agency at Knight Frank, said: “Despite the extreme challenges that the UK hotel sector is enduring, the long-term fundamentals remain positive and the sector will recover as the economic landscape starts to revive. Achieving a successful mass vaccination campaign is vital to the lifting of the current trading restrictions imposed on the sector, which in turn will lead to an increased level of hotel investment.  

“We envisage an increase in Covid-induced investment activity from Q2 and thereafter, driven by pressure exerted from stakeholders. With softer pricing available, this period immediately following the Brexit transition may serve to further strengthen investor appetite, attracted by long-term investment prospects. We expect to see overseas investors target quality assets in London and other gateway cities, as well as further repurposing of assets and land sold for alternative uses as investors continue to diversify their portfolios throughout 2021.”

Government financial stimulus and the flexibility of lenders over covenants, capital repayments and interest holidays has helped to prevent distress. Many hotel properties have been refinanced or their existing financing being restructured and/or extended.

As a result of the national lockdown and the likely continued restrictions thereafter, Knight Frank predicts an increasing number of distressed assets and consensual sales due to the lack of cash reserves.

Knight Frank considers there is potential for owners to bring assets to market in Q1, with the second half of 2021 driving strong demand for hotels from the domestic leisure market. 

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