Transaction volumes in the UK hotel real estate market reached £732 million in the third quarter although investment continued at a slower pace relative to the first and second quarters of the year, reports Cushman & Wakefield.
The third-quarter volume represented a 93% increase on the same period in 2023, fuelled Cushman points out primarily by single-asset transactions in London, which accounted for 51% of the total, as well as Edinburgh, and smaller sales across the UK regions.
This contrasts to the large-scale portfolio deals which accounted for two-thirds of the deal volume during the first half of 2024.
On a cumulative basis, year-to-date investment volumes reached £4.7 billion to the end of Q3 2024 – 181% higher than the same period in 2023. A total of 30 properties representing more than 3,900 rooms transacted in Q3 2024, bringing the year-to-date total to have changed hands to 230 properties which takes in around 25,500 rooms.
Notable deals include the £230 million portfolio acquisition of three London aparthotels – branded Residence Inn by Marriott – and, in a separate transaction, the DoubleTree by Hilton Edinburgh City Centre. : In both transactions Pandox was the buyer and the sellers were Starwood Capital and Starwood Capital's affiliate Brightbay Real Estate Partners (BBREP), respectively. Also in Edinburgh was the purchase of Yotel Edinburgh by private equity firm Millemont Capital Partners, also from Starwood Capital.
This transactional activity has been underscored by continued confidence among hotel operators and investors in top-line growth with forecasts from STR/CoStar projecting RevPAR growth of 4.5% in London and 5.1% UK-wide for the next 12 months.
Cushman reports that regional UK hotels have outperformed London, achieving higher RevPAR growth in year-to-date 2024. According to STR/CoStar, RevPAR in the UK regions sits 31% above 2019 levels in the 12 months trailing August 2024, versus 24% in London for the same period. Translating top-line growth into profitability remains a challenge, with many looking to the Chancellor of the Exchequer’s upcoming Budget for support with business rates and clarity on employee wage growth.
Investment wise Cushman reports that yields have remained generally stable in 2024, with slight compression observed in top-tier deals within high-barrier markets.
With greater political certainty in the UK, increasing liquidity in debt markets, and anticipated interest rate cuts in Q4, Cushman & Wakefield expects a gradual tightening of prime yields heading into 2025.
The adviser says that while luxury hotels continue to experience strong demand, value-conscious consumers are exerting pressure on rates outside of peak periods. Group and corporate segments have demonstrated the most significant year-on-year (YoY) improvements, driving mid-week demand and benefiting regional markets.
According to forecasts from Oxford Economics, by the end of 2024, international and domestic nights in hotels are projected to grow by nearly 9.5% and 4% year on year, respectively, reflecting an annual growth rate of 2.2% over the next five years.
Looking forward, the outlook for the rest of the year remains strong, with full-year 2024 deal volumes anticipated to exceed £5 billion. The momentum is expected to continue into 2025, supported by an expectation of more quality stock on the market, declining interest rates as a catalyst and improving clarity in pricing.
Jack Wallsworth, from Cushman & Wakefield's Hospitality Capital Markets team, said in a statement: “Although on face value the total deal volume for this year has been significantly elevated, when we strip out the larger portfolio trades activity has been more nuanced, reflecting the ongoing bid/ask spread and lack of quality single asset stock. With the summer now over and 2025 firmly in sight, the approach of both owners and buyers is certainly shifting.
“We’re now experiencing a greater bullishness to get deals done, fuelled by a greater meeting of minds between buyers and sellers on pricing, the ability to price in base rate compression, and the general resilience of hotel performance. Challenges of course remain, with many looking to the Autumn Budget for clarity on the path ahead, but on the whole the ‘wait and see’ sentiment is easing as positive conviction takes centre stage.”