London drives hotel investment as confidence in sector returns in absence of Covid restrictions
Some £4bn was pumped into the UK hotel market last year, as the sector eyes the easing of Covid travel restrictions.
Investors continued to boost the country’s hotels despite Covid uncertainties, thanks to an improvement in the visibility for future trading, according to research from property adviser Knight Frank.
Hotel transaction volumes in the capital hit £2.1bn in 2021, making up 54 per cent of total UK transactions.
Three quarters of overseas investment was focused on the capital city, as investors looked towards a period of trading hopefully uninterrupted by future Covid lockdowns.
Volumes were anticipated to hit £5bn this year, according to Henry Jackson, head of hotel agency at Knight Frank.
Jackson said: “With the setback of the Omicron variant having now passed, the strong flurry of transactional activity that occurred during the final quarter of 2021 is expected to continue in the months ahead.
“Staycations in the UK are expected to continue boosting regional performance, and the return of international travellers will further enhance trading performance in London and city centre hotels throughout the UK.
“While the sector is facing a sustained period of economic pressures, current market dynamics are likely to ensure a positive year ahead for the UK hotel transactional market.”
It is thought that transactional activity will be driven by a greater level of asset rotations as investors prioritise stalled exit plans or bring new assets to market, to take advantage of the upturn in the investment cycle.
Philippa Goldstein, senior analyst and head of hotel research at Knight Frank, said the level of investment witnessed at the end of last year was “testament to the level of interest and capital available from well-funded investors eager to establish a presence in a sector that has proven its resilience.”
She added: “Looking ahead investors must remain increasingly alert to the various headwinds affecting the hotel sector. The pandemic forced owners and operators to properly understand the cost structure and manage a hotel’s cashflow effectively. With the current inflationary environment, this will further encourage operators to think creatively about increasing efficiency to help maintain or improve margins.”
It comes as hotel bosses from businesses including Beds And Bars Group, Castlewood Hotels, Marriott International (London), have called for a VAT hike to be stalled.
Hospitality firms have called on the Chancellor to retain the current 12.5 per cent VAT rate beyond the end of March, as businesses still try to recoup losses from periods of Covid restrictions and closures. VAT is currently set to return to its pre-pandemic level of 20 per cent later this year.
UK bosses have said retaining the rate at 12.5 per cent will generate more jobs and ensure more businesses can continue trading as they repay debts.