2024 hotel investment saw the return of US private equity. Could 2025 be characterised by a return of big-ticket London assets?
2024 marked a seven-year high for hotel transaction volumes. Activity totalled £5.73 billion, the highest full-year total since 2018, up 157% year-on-year (YoY) and 20% above the ten-year annual average. This resurgence meant that hotels were at the forefront of the improving UK real estate investment market in H2 2024, being one of the few sectors to report a YoY improvement in volumes.
But who and what drove this uptick in activity, and what does it mean for 2025?
What has already been well documented is that 2024 saw the return of portfolio acquisitions fuelled by US private equity. Portfolios totalled £3.12 billion, equating to 54% of total volumes, 60% above the ten-year annual average. This was almost exclusively driven by US private equity, who spent £2.62 billion, 490% higher than their ten-year annual average. Key deals included Blackstone’s acquisition of the Village portfolio and KKR and the Baupost Group’s purchase of 33 Marriott hotels across the UK.
While portfolio deals were central to driving the return in market volumes, there was increased activity in many subsegments of the market. Single-asset volumes were up 48% YoY (£2.61 billion), although were still down 7% against the ten-year average. Volumes in London were up annually and against the ten-year annual average (105% and 16%, respectively).
Owner-operators were also more active
While US private equity portfolio acquisitions may have dominated headlines, a range of different buyer types stepped up activity last year. Hotel owner-operators, after private equity, were the most prolific, spending £1.13 billion, +70% YoY and +24% on the ten-year annual average. Institutional & asset managers/investors were also more active (£1.02 billion), with volumes also up +70% on 2023, albeit 39% below their long-term annual average. Property companies & developers were the only buyer type to see a contraction in volumes, likely reflecting the challenges facing bottom-up development in the current high construction and higher debt cost environment.
European capital became more active in 2024
The level of private equity investment last year meant that non-domestic investors, in particular from the US, dominated volumes. International investors spent £3.8 billion on UK hotel assets last year, representing 66% of total volumes and in line (in share terms at least) with that seen the preceding year. In YoY terms, international investment was up 60%. Domestic (UK) buyers accounted for 28% of volumes (£1.6 billion), up 65% YoY (6% of volumes are uncategorised as buyer/origin of capital is unknown).
It was not just the North Americans that were more acquisitive, European investors spent just over £688 million, a doubling on 2023 volumes. Notable acquisitions include Pandox’s purchase of a three-property portfolio of London aparthotels for a reported £230 million.
Despite being relatively active investors pre-pandemic, investment from Asia Pacific buyers was more muted when benchmarked against 2023, with volumes down 77% YoY. However, this was off the back of some large acquisitions in 2023. Looking to 2025, we expect activity by this buyer group to increase, targeting a number of geographies, not just Central London.
What does this mean for 2025?
Continued investor interest in operational assets, such as hotels, and a slight softening in debt costs means that we expect the liquidity seen last year will continue into 2025. Fewer portfolio opportunities, however, does suggest we may not see the same volumes of real estate transactions, albeit we do think activity will be in line with the ten-year annual average of £4.7 billion.
Where we do expect to see an increase is in the number of single-asset transactions, particularly of big-ticket London assets, and in M&A activity. In the case of the latter, we have already seen IHG purchase the Ruby hotel brand in February for a reported €110.5m, with a number of rumoured brand acquisitions also in the offing. In regards to increased single-asset activity, the improved liquidity and stabilisation in debt costs is bolstering owners’ confidence to bring assets to market. For example, in the first two months of 2025, we have seen the 708-room Holiday Inn London on Kensington High Street and the 732-room St Giles Hotel on Tottenham Court Road come to the market with a potential combined value in excess of £500 million. We also expect to see some non-core assets from last year’s portfolio acquisitions spun out.
Single-asset transactional activity is also expected to improve outside of London and the big regional cities – a part of the UK market that was relatively quiet last year. For some owner-operators, the normalisation in top-line performance coupled with some operational headwinds, such as the increase in NICs in April, could expedite decisions to exit, supported by renewed confidence in buyer appetite and pricing levels. With a number of smaller groups looking to grow their portfolios in leisure-dominated markets, this will also provide some interesting opportunities.