UK hotel market investment tops £4bn in 2021

The UK hotel market saw investment volumes reach £4bn in 2021, amid growing investor optimism over the long-term prospects for the sector, according to the latest UK Hotel Capital Markets: Investment Review 2022 by Knight Frank. Despite the impact of the pandemic on UK hospitality, the underlying drivers of increased hotel demand and the continued improvement in profitability and visibility for future trading all contributed to improving investor and lender sentiment towards the sector. Hotel transaction volumes more than doubled in 2021, increasing by over £2bn versus the previous year. Some 52% of the annual transaction volume was completed during the final quarter of the year, highlighting the “buoyed” investor sentiment throughout the summer and autumn months due to the stronger trading performances. Some 150 single asset hotel transactions took place in the UK with a guide price of over £2m, equating to around £1.9bn. This reflected a 58% increase in the number of single asset deals and 46% increase in the transaction volume, compared to 2019. This represents the highest level of single asset activity to take place since the record-breaking year for hotel investment in 2015. Some 46% of hotels which transacted in regional UK in 2021 were located in a rural/coastal/resort or private estate setting, equating to approximately £600m of transactional volume. Knight Frank further reported over £625m of independently operated hotels transacting in regional UK, a 385% increase compared to 2019. Hotel transaction volumes in London reached £2.1bn in 2021, accounting for 54% share of total UK transactions. Some 74% of overseas investment was targeted towards London, which represented 51% of the total London hotel investment volume. Knight Frank said it remains “cautiously optimistic” for 2022, anticipating that transactional activity will be driven by a range of factors including, a greater level of asset rotation as investors prioritise stalled exit plans or bring new assets to market, to take advantage of the upturn in the investment cycle. 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.” He added: “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 £5bnin 2022.”