The first quarter was the quietest since early 2021 in terms of hotel investment volumes.
According to CoStar data, total sales fell by 38% year-over-year. Deals were led by regional asset sales at the lower end of the spectrum in January, a trend that started in late 2022 once debt costs began to rise.
Buyers with some extra cash drove a rise in sales in the first quarter, however. After a quiet period of little activity, the hotel sector saw a flurry of trades happen in February, including major deals across regional markets. Firstly, Pandox acquired the 232-room Queens Hotel in Leeds for approximately £53 million (£228,000 per room) from Aprirose. The Group announced that the acquisition was initially being financed via existing funds and credit facilities, helping them complete the transaction, while providing an advantage in this environment. Meanwhile, Fattal Hotel Group purchased the 201-room Grand Hotel Brighton for an undisclosed sum, reported to be up to £60 million, having previously been sold in 2014 for around £50 million to Wittington Investments.
Leisure-led locations and quality and well-located assets are on investors’ radars as buyers become selective about acquisitions, especially in the regions. The Queens and Grand hotels sit in locations that have benefited from the domestic leisure surge following the pandemic while the assets are also key landmarks within their destinations, offering potential value upside.
London assets continued to be sought after. Similar to regional activity, February kick-started a flurry of deals in the capital. The 75-unit Native Bankside sold for approximately £40 million (£533,000 per room) to JaStar Capital and it is expected to continue to be operated by Native Places under a new long-term management agreement. Meanwhile, Dalata Hotel Group acquired the recent delivery of a 182-room hotel in Finsbury Park, originally slated to open as a Premier Inn. The acquisition amounted to approximately £44 million (£231,000 per room) with the group reporting that an additional £2 million will be invested to the asset as it is brought up to the Maldron brand standards. Lastly, in March, Firmdale Hotels acquired the Covent Garden Hotel for around £55 million (£948,000 per key) from CBRE Investment Management, a hotel it has managed since 1996. The price per key for the property was the highest to date and reinforces the strength of the luxury boutique hotel sector.
The appeal of boutique high-end properties is evident in the regions too. Crerar Hotel Group, including seven upmarket hotels and inns in Scotland, was acquired for an undisclosed sum in March by Blantyre Capital with their operating partner Fairtree Hotel Investments. The acquisition is in line with the new owner's ambition to grow its portfolio at the upper end of the market, while also enabling it to capitalise on the local market growth. The Scotland North Regional submarket, where the properties are located, has been one of the outperformers in Scotland given its appeal to domestic and international visitors, having experienced robust revenue per available room growth in the past 12 months.
Appetite for the hotel sector remains with companies like Blackstone raising funds to focus on alternative sectors, such as hospitality, though market uncertainty is keeping many investors at bay. With the Bank of England expected to raise interest rates one more time in May, buyers are waiting on the sidelines to see where these may stabilise and what the impact may be on pricing further down the line. So far, sellers have been reluctant to chip on pricing, but inflationary pressures coupled with higher capital costs could start to drive some correction in the hotel space, especially for those that look to refinance later this year.