UK deal volume doubles up in 2021

U.K. hotel investment volumes nearly doubled in 2021, reaching £4 billion (US$5.42 billion), according to the latest report from global property adviser Knight Frank. The report also suggests improving market conditions will allow deal volume to reach £5 billion (US$6.77 billion) in 2022.

Fully, 52% of the annual transaction volume completed during the final quarter of the year. In total, some 150 single asset hotel transactions took place in the U.K. with a guide price of over £2 million (US$2.71 million), equating to approximately £1.9 billion (US$2.57 billion). 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.

With considerable capital available for hotels located in strong staycation markets, some 46% of hotels which transacted in regional U.K. in 2021, were located in a rural/coastal/resort or private estate setting, equating to approximately £600 million (US$813.19 million) of transactional volume. Knight Frank further reported over £625 million (US$847.06 million) of independently operated hotels transacting in regional U.K., a 385% increase compared to transaction volumes in 2019.

The Ritz London

Both London and regional U.K. continue to offer attractive, long-term returns for global and domestic investors, with hotel transaction volumes in the Capital reaching £2.1 billion (US$2.84 billion) in 2021, accounting for 54% share of total U.K. transactions.  Some 74% of overseas investment was targeted towards London, which represented 51% of the total London hotel investment volume. With increased volumes of portfolio transactions anticipated to transact in 2022, Regional U.K. is likely to see its share of investment activity recover, along with greater investment by overseas investors for the year ahead.

Knight Frank 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 prioritize stalled exit plans or bring new assets to market, to take advantage of the upturn in the investment cycle. Increased funding-led sales are also expected, but according to Knight Frank this does not necessarily mean distress. Instead, lenders will exert greater control over their loan books, encouraging owners to review their level of indebtedness and focus on those investment plans which will bring the greatest returns.

“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,” said Henry Jackson, head of Hotel Agency at Knight Frank.

“Staycations in the U.K. are expected to continue boosting regional performance, and the return of international travelers will further enhance trading performance in London and city center hotels throughout the U.K.,” Jackson added. “While the sector is facing a sustained period of economic pressures, current market dynamics are likely to ensure a positive year ahead for the U.K. hotel transactional market, with volumes anticipated to rise to £5 billion (US$6.77 billion).”