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The resurgence of the UK hotel sector as a prime investment opportunity

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The resurgence of the UK hotel sector as a prime investment opportunity

The UK hotel sector has experienced a remarkable resurgence in recent years, emerging as a highly attractive proposition for commercial property investors. Following years of uncertainty driven by the COVID-19 pandemic and economic fluctuations, 2024 marked a turning point, with transaction volumes soaring to pre-pandemic levels. As the sector enters 2025, it offers insights into how adaptive strategies and robust fundamentals have redefined its investment appeal. 

Record-breaking investment volumes in 2024

According to Christie & Co’s Business Outlook report, the UK hotel sector achieved approximately £6.4 billion in transactions in 2024, the highest level since 2018/19. Similarly, Savills reported £5.75 billion in transactions for the year, more than double the volume recorded in 2023, showing a renewed confidence in the sector. 

The resurgence was largely attributed to a spike in portfolio transactions, which accounted for 55% of total investment volumes, reflecting an extraordinary 582% year-on-year increase. Notable transactions included Starwood Capital’s acquisition of 10 Radisson Edwardian hotels, Blackstone’s purchase of Village Hotels, and the sale of 66 Travelodge freehold hotels by LXi REIT.  

The geographic distribution of investments offers further insights into the sector’s evolution. Approximately 40% of transactions in 2024 occurred in London, where volumes grew by 105% year-on-year to £2.40 billion. However, regional markets were equally dynamic, contributing £3.34 billion, a 217% year-on-year increase and 24% above the 10-year annual average. This regional growth signifies a broad-based recovery, with secondary markets attracting attention alongside prime urban centres, and is indicative of a remarkable recovery from the pandemic-induced lull, re-emphasising the enduring appeal of the UK hotel sector, particularly among private equity investors seeking robust inflationary hedges and assets with both domestic and international allure. 

Investor confidence

Several factors have underpinned the hotel sector’s resurgence. First, its inherent resilience as an asset class has proven particularly appealing amid broader commercial property market challenges. Hotels benefit from their dual nature as operational businesses and real estate investments, offering diversified income streams. 

Additionally, the sector provides a hedge against inflation. With rising costs placing pressure on traditional real estate returns, hotels’ ability to adjust pricing dynamically, whether through room rates, food and beverage offerings, or other revenue stream, positions them as a competitive alternative. 

The sector’s strength is underpinned by solid fundamentals, including its recovery from pandemic disruptions, its role as a key driver of tourism and leisure economies, and its ability to attract a diverse pool of investors.  

The sector’s international appeal also remains strong. The UK continues to attract overseas investors drawn by the country’s stable market fundamentals and enduring status as a global tourism hub. Christie & Co highlighted in its recent report that European hotel investments, particularly in the UK, were outperforming the wider commercial real estate market, with the UK market accounting for 36% of total European hotel transactions. 

Challenges and opportunities for 2025

While 2024 marked a high point for hotel investments, the outlook for 2025 will be shaped by both challenges and opportunities. Rising operational costs, including payroll, pensions, and business rates, are expected to pressure profit margins, with Christie & Co anticipating that these rising costs could lead to an increase in distressed hotels entering the market. However, this will, conversely, provide a good opportunity for those investors with the capital and appetite to acquire underperforming assets. Under performing hotels have always been seen as a good asset management opportunity. 

Regardless, the sector’s current momentum does suggest there will be continued resilience despite the perceived threats. Investors are being increasingly drawn to opportunities that balance immediate challenges with long-term growth potential, and despite potential cost pressures, the market pipeline for single assets and smaller portfolios remains robust, suggesting that investment activity will remain strong in the coming year. 

A positive outlook

Although some uncertainty persists due to geopolitical risks and domestic cost pressures, the fundamentals of the UK hotel market have not weakened, and the sector has demonstrated its ability to adapt and thrive. 

As 2025 unfolds, the forecast for the sector is sustained activity, albeit at a slightly moderated pace compared to 2024’s record-breaking year. Both Christie & Co and Savills have predicted there will be a continued demand across a range of investor types, supported by a strong pipeline of assets coming to market.  

Strategic investments, particularly in regional and emerging markets, are expected to drive growth, reaffirming the UK hotel sector’s position as a cornerstone of the commercial property investment landscape. We have seen several clients on the hunt in this sector.