CoStar Analytics
London hotel investment volumes sank to a nine-year low in 2022 as investors retreated from the market almost entirely in the final months of the year, according to CoStar data.
London hotel sales volumes totalled around £1.5 billion in 2022, a 30% decline on 2021. The final quarter of the year was weak with few deals completing, though achieving higher volumes than the rest of the country. Two hotels traded in December, including the sale of The Dilly, formerly known as the Le Meridien Piccadilly, to Fattal Hotel Group for an estimated £90 million (£318,000 per room) and the acquisition of The Draycott Hotel in Chelsea by Cadogan Estates for an undisclosed sum.
Value-add opportunities for well-located assets achieved some of the highest prices per room in the capital. The sale of the 39-room L’Oscar London Hotel for £60 million, equivalent to £1.5 million per room, to luxury hotel owner and operator Michel Reybier Hospitality in March is a prime example. The deal offers the opportunity for an extension including an additional dozen rooms and suites as well as spa facilities, with upside potential for the new owners. Similarly, in September, the freehold of the 20-room Leinster House Hotel was sold for £33 million, or £1.7 million per key, as vacant possession with planning permission for an extension of the hotel and conversion into nine residential apartments.
Investor appetite for the limited-service sector, including low- to mid-tier hotels, was also evident, accounting for approximately 37% of total volumes. Opportunities with well-known operators were favoured resulting in a number of Premier Inn- and Travelodge-branded assets trading in 2022. Whitbread itself put a vote of confidence in the London hotel market when it purchased the former 205-room Park Hyatt Trafalgar Square development in the Strand. The acquisition amounted to a total all-in cost of £200 million, including land, construction and other development-related costs, to expand its hub by Premier Inn brand. Economy hotels are expected to excel in the year ahead given the rise in the cost of living potentially influencing consumers to trade down on accommodation options, be it for leisure or business.
Investment volumes are likely to bounce back in 2023. With debt markets expected to stabilise and inflation due to come down by mid-2023, investor confidence and appetite is set to improve. With elevated amounts of capital sitting on the sidelines waiting for opportunities to come to market, those in London will drive competitive bidding processes, likely limiting pricing discounts in the near term. A weaker currency could also influence cash-rich overseas buyers to look for opportunities here in the coming months.
cbalekjian@costar.co.uk