End of year forecasts look strong at around £5.8 billion in total investments, marking a return to the levels of activity seen in 2019. London has been at the heart of this resurgence, with investment volumes surging 91% compared to the same period last year. There are reasons for optimism, but what trends might shape the market as we enter 2025?  

Cross border investment is back  
According to MSCI Real Capital Analytics, cross-border buyers accounted for 20% of global commercial real estate transactions by value last year, with regional variations ranging from over 40% in Europe to 25% in Asia Pacific and 10% in North America. Although this is below the peak of nearly 30% in the mid-2010s, it highlights the ongoing appetite for international investments.  

The hotels sector offers resilience, relative values and ability to hedge effectively against inflation. Institutional and private equity investors continue to target both best in class trophy-style assets and larger portfolios, which have often been favoured by international investors. As markets mature and risk appetite grows, the hospitality sector will offer more opportunities for value creation and long term returns.  

Big is beautiful  
During 2024, the sector experienced a remarkable resurgence in M&A activity, a trend poised to continue into 2025. The driving force behind this momentum lies in the robust liquidity of the debt market, where lending appetite has surged despite isolated cases of restricted capital. After a period of cautious focus on existing portfolios in 2023, bank lenders have re-entered the market with vigour, bolstered by non-bank lenders capitalising on elevated interest rates and enhanced returns.  

This renewed confidence has fuelled a wave of major transactions, such as Stepstone and Proprium’s acquisition of the A&O platform and Edwardian Hotels’ sale to Starwood Capital. High-profile deals, including KKR’s acquisition of a Marriott portfolio for approximately £900 million, and Proprium’s exit from Motel One for approximately €1.25 billion, illustrate the sector’s appetite for scale. With assets like Easy Hotels on the market for €425 million, the hotel industry’s ‘bigger is better’ philosophy signals an exciting period of consolidation and growth ahead.  

Sub-sectors on the rise  
Serviced apartments and aparthotels are expected to perform strongly in 2025, particularly in key gateway cities, driven by their appeal to travellers seeking extended stays and flexibility. London is set to become Europe’s largest serviced apartment market by 2028, with supply projected to increase by 21%. Investor confidence is evident in acquisitions such as Ando Living’s purchase of City Apartments, along with other strategic deals in prime locations. Undersupplied markets experiencing rising international arrivals indicate significant growth potential for the sub-sector.  

This year has also seen over £400 million of  office buildings being converted into hotels, with no signs of slowing down. The City of London’s supportive planning policies now allow vacant offices to be repurposed, a practice commonly seen in the US, which helps revitalise urban areas. Properties such as 68 Lombard Street, which was well suited for hotel conversion, attracted a variety of proposals, ranging from serviced apartments to lifestyle and to micro-room concepts.

There are many reasons for optimism in the hotels sector. Strong fundamentals, and international appeal underpin its strength. The sector will need to consider how it protects margins by mitigating the impact of the Budget, such as through service offer and staffing levels considerations. Finally, the rise of sub-sectors like serviced apartments and hybrid hostels and the continued trend of office-to-hotel conversions will keep the sector dynamic and ever-evolving