Total hotel sales in the UK during the first six months of 2023 fell 49 per cent year-on-year, data from CoStar has found.
According to CoStar, there was a significant 49 per cent decrease in total sales YoY, with deals largely being led by buyers at the lower end of the price spectrum - sub £20 million - and often needing little to no debt as interest rates climbed.
However, the real estate market data and analytics company noted some larger value-add transactions still happened, such as Henderson Park's acquisition of the Waldorf Astoria Edinburgh – The Caledonian and Fattal Hotel Group's purchase of the Grand Hotel Brighton which was reported to be up to £60 million, having previously been sold in 2014 for around £50 million. Extensive renovations of the Grand Hotel Brighton, partly funded by a £43.7 million loan from Bank Leumi, are expected to begin shortly.
London hotels also remained on investors' radar. Even though the capital saw less activity compared to historical trends, 19 hotels changed hands. However, none of these transactions exceeded the £60 million mark, further highlighting constraints in debt funding. However, in May Bank Leumi provided a £26.3 million loan to Zorca Holdings for the acquisition and refurbishment of two properties in Bloomsbury – the 26-room Grange Blooms Hotel and the 60-room Grange White Hall Hotel – due to be merged into one luxury hotel offering 74 rooms.
Despite challenging conditions and overall market uncertainty, there are promising signs of revival. Several large deals have been brought to market or are in the process of being put up for sale, including the Center Parcs UK portfolio for about £4 to £5 billion, the Travelodge portfolio at around £1.2 billion, while KSL Capital Partners is also reported to be exploring the sale of the Village Hotels portfolio which it acquired in 2014. The £400 million divestment of the Landsec hotel portfolio, comprising 21 Accor-branded properties across the UK, is also reportedly going through its final stages.
CoStar noted this activity reflect a robust appetite for the UK hotel sector. Demand has held steady, with RevPAR showing double-digit growth year-to-June across the UK and Blackstone raised funds to focus on alternative sectors such as hospitality.
However, uncertainty especially in relation to further interest rate rises by the Bank of England may affect activity in the second half of the year. A lack of transparency around pricing and a higher number of off-market transactions has also led to limited discounting on pricing and the bid and ask spread being widely apart still. However, as capital structures become more challenged due to loan repayments and refinancings at higher debt costs, it is likely that sellers could be forced to sell at whatever cost to generate some cash.
What they said
Cristina Balekjian, director of Hospitality Analytics UK at CoStar Group said:“The slowdown in UK hotel investment volumes in the first half of this year reflects the high cost of debt, which is expected to further increase as the Bank of England prepares to raise its base rate to 5.25% this Thursday. As the market gears up for further interest rate rises, the sense of uncertainty among investors is set to remain, and as a result, we expect to see subdued investment activity in the second half of the year.”