UK hotel sector investment volumes decline by 70%

The Covid-19 pandemic brought about a “turbulent year” for hotel trading performance, with UK hotel investment in 2020 declining by 70% year-on-year, according to the latest figures from Knight Frank.

Knight Frank’s Hotel Transaction Trends 2021 research analysed the total investment trends in the UK hotel sector, which saw investment volumes in 2020 total £1.8bn, compared to total investments of £6bn in the previous year. Furthermore, it found that 81% of the transaction volume occurred in Q1-2020 (£1.5bn).

London, which accounted for 76% of the total UK volume, witnessed a decline of 49% in transaction volume, with the sale of The Ritz contributing £750m to the capital’s total investment of £1.4 bn.

Knight Frank said economic disruption, forced temporary hotel closures as well as restrictions on travel and social engagement all contributed to the level of hotel investment being severely curtailed, with a dearth in portfolio activity.

Whilst overseas investment declined by 44%, Qatari, Israeli, USA, Singaporean, Thai and European investors accounted for 63% of the total UK hotel investment.

The main drivers for most UK hotel transactions throughout 2020 were found to be retirement sales, hotels sold for alternative use, non-core assets sold to bolster equity and non-alignment of shareholder interests.

Knight Frank added the financial impact of Covid-19 on hotel assets has been “severe”, with lenders forced to be flexible towards their borrowers that have been acutely focused on supporting their existing clients, resulting in many hotel properties being refinanced or their existing financing being restructured and/or extended.

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.”

He added: “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.”