Hotel investments plunge to lowest level since 2012 as high costs bite
Investment into UK hotels sunk to its lowest level in over a decade last year as high costs deterred developers.
According to a study by Knight Frank, annual investment volumes are now 57 per cent below the ten-year average and, excluding the year the pandemic took place, levels are now the lowest since 2012.
A cocktail of elevated operational costs and a widening mismatch between buyer and seller price expectations contributed to the decline in activity.
Despite the slowdown, foreign investors continued to express interest in the market with 39 per cent of all deals involving overseas buyers, particularly in London.
Notable hotel deals in London included the 105 Key Burns Hotel in Kensington, which was acquired by Singaporean investor, KOP Group for £35m.
Knight Frank said one emerging trend is investors capitalising on the working-from-home trend, with many looking to repurpose offices for hotel use.
Back in September, Whitbread bought Fenchurch Tower New London House with plans to transform the building into a hotel.
Henry Jackson, partner and head of hotel agency at Knight Frank, said: “We have seen an encouraging uptick in investor activity at the end of 2023, with demand for London hotel assets particularly positive.”
“Yet, 2024 is expected to be a pivotal year, we anticipate that with the higher yields associated with operational real estate and the living sector driving an increasing allocation of capital, hotel investment will recover at a more buoyant pace as the year progresses.”
He added: “Hotel property continues to offer value and diversification of risk, and with hotel yields stabilising and trading expected to maintain its momentum despite low economic growth forecast, we envisage a greater volume of diversified capital to be deployed into the sector in 2024.”