Overseas Investors Continue To Dominate The UK Hotel Investment Market, Undeterred By The On-Going Market Volatility

 According to international real estate advisor Savills, overseas capital accounted for £1.6 billion (c.70%) of investment into the UK hotel sector in 2020. Driven by investors from Qatar and Israel transacting on over £1.25 billion of central London trophy hotel assets.

Overall UK hotel transaction volumes reached c.£2.3 billion in 2020, approximately 55% down on both 2019 volumes and the ten year average. Total transactions in London totalled c.£1.9 billion, accounting for 83% of all UK hotel investment activity. Consequentially, UK regional investment totalled approximately £400m, showing an 8% (North), 4% (South West), 3% (South East) and 2% (Scotland) regional split. Key 2020 deals include the sales of The Ritz, Grosvenor House Suites and Sanderson & St Martins Lane hotels.

Rob Stapleton, Director, Savills Hotel Capital Markets, comments: “As expected, the global challenges of 2020 initiated a flight to quality response. Transaction volumes were down on historic levels albeit this was predominantly led by a lack of available stock rather than a shortage of investor demand which remains at historically high levels. The commencement of the vaccination roll out in the UK has instilled a growing sense of optimism and increased confidence amongst investors and, whilst we have seen unprecedented levels of forbearance from the lending community in 2020, we expect to see increased levels of stock come to market during Q2 and Q3 2021.”

“On the whole, UK real estate continues to be an attractive investment asset class given the relatively weak strength of the pound against other currencies, coupled with the widening spread between Gilts and equivalent yields.”

Tim Stoyle, Head of UK Hotels, adds: “As was evidenced by the success of the UK staycation markets in the summer of 2020, the demand for domestic holidays are high and the public are awaiting the alleviation of lockdown measures and an eventual return to normality. This will rejuvenate cash-flow and subsequently stimulate transactional activity. As we have seen with previous downturns, investment activity increased following relatively short periods of consistent RevPAR growth. Approximately 110 transactions occurred in 2020, with c.90 of those being located outside of London underlining the success of the staycation markets.”

“Whilst there continues to be liquidity in the market, transactional activity will only increase significantly when the debt markets return. Lenders have been focussed on supporting their existing customers and as such new lending has not been the priority. As assets become income producing once again and there is increased confidence in hotel performance, we will see the debt providers,  and thereafter activity levels, return.”