Business Outlook 2025 | Hotels - UK

2024 was a great vintage for UK hotel transactional activity, with volume reaching 36% of total hotel deal volume in Europe up to the third quarter of 2024, positioning the UK as the leading market.

This resurgence in transactional activity was principally linked to several portfolios, such as Starwood Capital buying 10 Radisson Edwardian assets, Ares buying LandSec AccorInvest’s portfolio, Village hotels being acquired by Blackstone, Travelodge acquiring 66 freeholds from LXi REIT, Pandox buying a portfolio of three serviced apartments in London for £230m and most recently KKR and The Baupost Group acquiring a portfolio of 33 UK hotels from ADIA.

As a result, 74% of transactional volume in 2024 was portfolio-linked, and while single assets are still transacting, they only represented approximately £1.6 billion versus £4.8 billion worth of portfolios. Approximately 40% of the volume transacted in London versus regional UK.

The number of deals agreed and exchanged increased significantly from 2023 to 2024, a clear sign that the tide is turning and pipelines are growing. The recalibration of pricing and the softening of yields have been progressive since early 2023.

In addition to a slow deceleration in top line performance, the Autumn Budget announcements made by the Labour government are likely to put further pressure on operational margins during 2025. Interest rate cuts are likely to be slower than originally anticipated, possibly delaying material pricing changes. Whilst we are positive about deal activity for next year supported by strong pipelines, it is unlikely that similar levels of portfolio activity will be replicated.

The UK has reclaimed its crown as the most active hotel transactional market, followed by Spain and France.

2024 hotel transactional volume has been boosted by portfolio activity and has returned to 2018/2019 levels with approximately £6.4 billion. 

Unprecedented levels of portfolio deals led to a substantial increase in deal volume during 2024.

Movement in the average price of sold hotels, year-on-year.

Market conditions improved, particularly towards the end of the year, with solid trading performances, more liquidity and more certainty around interest rates finally being on a downward trend. The impact of the Autumn Budget, particularly on increasing cost structures, has yet to transpire in pricing metrics.

We anonymously surveyed hotel business owners across the country to gather their views on the year ahead.

• Positive deal volume, but mostly through non-core disposals and individual deals as opposed to portfolio activity as seen in 2024
• Plateauing of top-line performance combined with cost pressures post-Budget announcements are likely to have a negative impact on profit margins overall
• Slow yield compression anticipated progressively throughout the year, linked to gradual interest rate cuts
• No material shift in development pipeline expected due to debt and construction costs
• Possible uptick in distress due to budgetary increases in payroll, pension and business rates
• Significant increases in luxury hotel supply, particularly in London, could put pressure on performance metrics