The United Kingdom's hotel industry saw hotel deals pick up in 2022, especially in the third and fourth quarters, and experts said that trend is likely to continue this year.
Cristina Balekjian, director of hospitality analytics for the U.K. at CoStar, said hotel transactions in the regional U.K. totaled 1.5 billion pounds sterling ($1.82 billion) in 2022. That represented a 30% decrease from the previous year.
“Single-asset transactions in the regions have been largely led by smaller-lot-sized deals. With leverage becoming more expensive, deals requiring little to no debt, sub-20 million [pounds sterling], have prevailed. The fourth quarter of 2022 saw nearly 50 hotels trade in that price bracket, and this has continued into the start of 2023,” she said.
Philip Camble, director of Whitebridge Hospitality, said 2022 was busy in the U.K. overall from a transactions perspective.
He also said he expects 2023 to be a stronger year for buying and selling hotels, although that is “likely to be very back-ended.”
“There are some big deals on the table that should conclude in 2023. I also believe that banks may start to pressure owners, and this may yield more deals for those opportunist funds with loads of money,” he said, adding private equity has raised a lot of money and is awaiting opportunities.
“Most deals are predicated on some kind of debt being available, which is tough at the moment but could become easier towards the end of 2023. Investors are keen to invest, [but] the issues are debt difficulties and the inevitable bid-ask spread. If these two issues can be addressed, there are plenty of investors out there keen on hotels,” he said.
One factor driving investment in hotels is the relative stability of the sector compared to other real estate.
Henry Jackson, partner and head of hotel agency at business consultancy Knight Frank, said hotels fundamentally do not have the problems that other sectors do. Offices are particularly troublesome real estate for investors currently, as some companies have abandoned physical office space amid work-from-home policies.
“Obviously, that is a positive [for hotels]. People like operational real estate, but the big question is who are going to be the most active buyers?” he said. “It will come down to the pricing point. Deals will be quite dry, and they need a value-creation story, an upside.”
Jackson said government intervention during the COVID-19 pandemic dramatically helped settle the nerves of investors and operators in general.
“Despite the anticipation of distressed sales in 2023, the ongoing availability of [government] home office contracts continues to provide some hotel owners with attractive short-term income streams, materially affecting the likelihood of certain hotels coming on the market,” he said.
Jackson said such contracts have helped hoteliers whose properties were not performing particularly well and added a layer of protection to those operating normally.
He added lenders are not pushing hotel owners to sell.
“They’ve learned to manage, and they’re working with borrowers in a better way than anything we’ve seen,” he said. “Hoteliers need to be shrewd in pricing, but they have been already.”
Jackson said there is no advantage for buyers to procrastinate.
“We’ve seen good pickup already, a decent pipeline of transactions in legals and under offer. Buyers showing first-mover advantage are the ones likely to benefit. Investors cannot sit on their hands, waiting, watching and seeing. They might miss the boat,” he said.
“What is different now is that hoteliers have got smarter, and that is going to come into their pricing. For some, that will mean higher hurdles, while others might have the necessary flexibility.
“If debt settles again, long-term holders can take a long-term view. If you are private equity with a five-year plan, you’ll need everything to be going the right way,” Jackson said.
He added that smaller hotels and deals are likely to dominate the transactions landscape, and increased asset liquidity will play into the sales equations.