I’m sure everyone expected 2022 to be a down year in terms of hotel transactions in the UK but the scale of the decline is still pretty startling.
Knight Frank and Savills both put out research saying the market hit £3 billion last year (down either 27.5 or 30% depending on how precise you want to be).
It’s difficult to spin this as being anything other than bad but it was the second half of the year that really did all the damage.
UK hotel investment saw a robust first half of the year, accounting for 68% (£2.1 billion) of total annual investment, thanks to momentum from Q4 2021, Knight Frank said.
But then Russia’s invasion of Ukraine, global economic uncertainty as well as domestic political turmoil thanks to Liz Truss’s short but disastrous reign, kicked in.
Added to this was the surge in energy costs, increasing payroll and other operational costs, the hike in interest rates resulting in the rising cost of debt and the growing threat of an economic downturn all of which contributed to reduced levels of investment in the latter half of 2022.
According to Savills activity outside of London proved to be relatively more resilient, driven by the staycation market, with year-end volumes of £2 billion, down 2.1% year on year.
Notable deals last year included: Tristan Capital Partners acquisition of Point A Hotels from Raag Hotels for approximately £420m, Fortress Investment Group’s acquisition of Prem Group and KSL Capital Partners acquisition of The Pig Hotels Group from Home Grown Hotels
What they said
Rob Stapleton, director, head of UK hotel capital markets at Savills, said: “2022 can be summarised as a tale of two halves where volumes in the first half were up 16.9% YoY and 61% lower in the second half of the year YoY, as rising debt costs and a weakening economic outlook caused activity to slow.”
Henry Jackson, partner and head of hotel agency at Knight Frank, said: “Whilst no hotel business is immune to the effects of an economic downturn, and whilst profit margins are likely to be squeezed in the short-term, operationally the sector has continued its recovery and an upturn in investment levels for 2023 is anticipated. We have seen an uptick in investor activity at the end of 2022 and purchasers who are proactively seeking out opportunities now are well placed to move quickly when new stock becomes available. Investors are showing renewed signs of confidence in the London hotel market, with overseas purchasers benefitting from currency plays.