More than £2.4 billion of UK real estate was transacted by hotel investors in 2023, according to Cushman & Wakefield, with just over a fifth (£0.5 billion) of that focused on office sites which are planned to be converted into hotels.
The overall volume of £2.4 billion covered 149 properties across the UK, representing 14,255 individual rooms. While the overall annual volume of deals was down compared with 2022 (£3.4 billion), Cushman says the final quarter of 2023 (£745 million) was 97% up on the same period 12 months earlier (£379 million).
In terms of capital deployed, private buyers dominated with 67% of deals completed, while institutional-backed capital (14%) shrank year on year. Domestic buyers represented more than half of deals, followed by those from Europe (26%).
Across the year, London in particular was the focus of a "boom" in development projects with office-to-hotel conversions particularly popular. Cushman reports: "The prime location of many office buildings, coupled with the desire to maximise underutilised real estate and the growing demand for hotel accommodation, have all played a role in fuelling this trend."
Several local authorities are actively endorsing this with Cushman & Wakefield saying the City of London Corporation has stood out particularly as an "advocator for change of use in a bid to safeguard property values, diversify use-classes and, in the long-term, enhance the City as both a business and leisure destination".
Notable London deals included the acquisitions of Haymarket House by Criterion Capital, 5-10 Great Tower Street by Dominus, and New London House by Whitbread.
Ed Fitch, head of hospitality UK & Ireland at Cushman & Wakefield, said in a statement: “The year was an extremely interesting one for hospitality, featuring as it did some of the most prestigious openings in years at the luxury end, such as Raffles London at The OWO, and government asylum accommodation contracts at the opposite end of the market.
“In investment terms, deal flow remained constrained, largely because of the mismatch between sellers holding out for prices based on extremely buoyant trading whilst buyers struggled given the far higher cost of debt. Positively, the difference between bids and asking prices is showing signs of narrowing, whilst macroeconomic uncertainties dissipate as inflation improves and rate cuts appear on the horizon. Loan maturity is also likely to drive an uptick in activity across 2024, meaning several assets should be brought to market.
“From a yield perspective, we are currently seeing a very nuanced landscape, yet intensified competition for prime opportunities alongside the expected movement of base rates this year should see a clear slowing down in the outward movement of yields.”
Cushman & Wakefield says the current and future hotel room supply in the UK is difficult to accurately determine due to the potential distorting impact of government asylum accommodation contracts. It adds that delayed projects continue to be delivered to market, with certain locations feeling the pressure as room supply grows significantly. But it expects hotel performance and demand to remain strong.
Fitch added: “Looking ahead, overnight stays in hotels are projected to surpass 2019 levels in 2024, with domestic overnights up by double figures. Cross-continental demand recovery, especially from the Asian and the American markets, should provide further support to this upward trajectory.”