The Year London Hotel Investment Imploded: 3 Things We Learned From The Latest Data

UK hotel investment volumes plunged by 70% in 2020, a year in which nationwide just £300M worth of transactions took place between March and December. Distressed sales and bargain hunters will keep the market ticking over in 2021, Knight Frank predicted.

Knight Frank’s Hotel Transaction Trends 2021 report has just been published. It makes grim reading: You can find a copy here. This is what we learned.

1. 2020 Was Very Bad, Even In London

Knight Frank data showed that investment volumes in 2020 totalled just £1.8B, compared to £6B in 2019. But it is even worse than it looks, because 81% of the transaction volume occurred in Q1 2020, amounting to £1.5B. That means just £300M worth of investment transactions took place in the remaining nine months of the year.

London, which accounted for £1.37B of the UK total, was down rather less severely than the nationwide trend. Volumes contracted by 49% compared to a UK-wide plunge of 70%. However, even this market was lopsided and weaker than it looked, because more than half the transaction volume was accounted for by one deal, the £750M sale of the Ritz Hotel, Piccadilly.

2. Overseas Buyers Still Set The Pace

Q1 buyers were overwhelmingly from mainland Europe, Qatar, Israel, the U.S., Singapore and Thailand, which between them accounted for 63% of UK hotel investment. In a more usual year they would have been yet more dominant, Knight Frank said.

The Ritz was sold in March 2020 to Qatari investor Abdulhadi Mana Al-Hajri in a deal that revealed tensions between the former owners, Sir David and Sir Frederick Barclay. It followed claims of an earlier £1.3B offer from Sidra Capital.

However, those overseas buyers that remained in the market had limited options because the handful of sales in Q2 through 4 were of independently owned and operated properties, many of them retirement sales, Knight Frank said. Sales were also prompted by the search for alternative use, non-core assets sold to bolster equity and what Knight Frank coyly described as “non-alignment of shareholder interests.”

3. Nobody Knows What Comes Next

Knight Frank is pinning its hopes for the first part of 2021 on bargain hunters, although they prefer to call them: “Shrewd investors who can navigate this crisis ….whilst skilfully acquiring and asset managing hotels before a return to pre-COVID valuations.”

Prospects for the second half of the year depend on domestic demand and a successful vaccination programme.

Throughout the year a rising toll of distressed sales, combined with more creative efforts to find alternative uses for hotel property, will remain features of the market.

“Achieving a successful mass vaccination campaign is vital to the lifting of the current trading restrictions imposed on the sector, which in turn will lead to an increased level of hotel investment,” Knight Frank Head of Hotel Agency Henry Jackson said.