UK hotel investment volumes increased 138% year-on-year in the first quarter of 2024, with properties comprising a collective 7,600 rooms trading to the tune of £1.7 billion as investors continue to explore office-to-hotel redevelopment opportunities.
Data published by real estate advisory firm Cushman & Wakefield shows that 93 properties traded in the first quarter of 2024, including two major portfolio deals: the Edwardian UK Radisson Hotel Portfolio and the LXi REIT Travelodge Portfolio. Those deals made up 60% of the transaction volume.
Private buyers were the dominant force in deals completed at 69%, followed by public investors (23%), and institutional-backed capital (8%). London accounted for 60% of major deals by volume.
The agency also noted that hotel performance was "buoyant", with overnight stays in hotels projected to surpass 2019 levels in 2024.
Deals in the capital included the sale of Atlas House to Integrity International Group and the iconic BT Tower to MCR Hotels, which sold for £275 million.
Cushman & Wakefield said the deals underscore the "sustained interest in development projects that focus on office-to-hotel conversions", which were a significant proportion of deal flow.
Ed Fitch, head of hospitality UK and Ireland at Cushman & Wakefield, said: "The last 18 months have seen the UK sustain elevated levels of hotel performance, which now appears to be stabilising as the new standard. The bid:ask spread continues to slowly narrow.
"There is strong capital interest in the sector, yet deal flow remains constrained by a lack of product on the market whilst buyers are adopting a wait-and-see approach anticipating base rate cuts in H2 2024, against the backdrop of an impending UK election.
"From a yield perspective, we see that they remain stable against those established at the close of 2023. Toward the back end of the year, a slow and steady sharpening in line with the gradual reduction in base rates can be expected, although reversion to historic lows of the 2010s is unlikely."
The UK hotel market "points towards a sustained positive sentiment" for the sector in the year ahead, the agency said, bolstered by improved consumer confidence, alongside the projection that leisure demand for hotel nights in the UK will grow a further 6% this year.
The report anticipates hotel supply growth will continue but at a decelerated rate relative to the past two years. UK-wide room supply grew 0.2% since the beginning of the year with circa 24,000 rooms still under construction, or 3.4% of inventory.
Cushman & Wakefield said a slowdown in new-build construction could be attributed to increased costs of materials, labour and financing. "Conversion activity is expected to be a primary driver of hotel pipeline growth in the upcoming months, especially in key cities," it added.
Fitch said: "The enduring 'flight to quality' continues to dominate the UK hotel investment, with 69% of deal flow amongst luxury and upper upscale hotel classes. This serves to heighten competition for opportunities in prime locations and maintain a consistently stringent yield environment for premium assets."
(Updated on 16 April to correct deal volume in subtitle).