Investors could look to other European markets as the UK hotel transaction becomes a more competitive battleground next year, following a number of major acquisitions by private equity companies in 2024, according to a panel at the Annual Hotel Conference 2024.
Setting the scene, Rob Seabrook, executive director at CBRE said that private equity had been responsible for 40 per cent of sales and 50 per cent of acquisitions in Britain during 2024 for the session CBRE Capital Talks: Charting a Fresh Course for the UK Market.
And EQ Group Chief Investment Officer Puneet Kanuga admitted that while the UK is “still a super exciting market” he envisaged that the large portfolio deals of this year would be replaced in 2025 by more, smaller deals.
“The bigger deals may shift to Continental Europe but equity will be very active. Companies are now looking at Spain, France and Germany – which will we believe pick-up – as people search for scale,” Kanuga said.
EQ Group has been active in the UK market and in May along with Ares Real Estate acquired a hotel portfolio from Landsec fully let to AccorInvest under long-term leases. In parallel with the closing of the acquisition, Ares entered into an agreement with AccorInvest to surrender the leases and transfer operations of 18 hotels to Ares for £400 million.
“We felt that the UK was at peak pessimism, some of which was warranted and some not. We had been tracking a few portfolios and we loved the bones of it [the Accor/Landsec portfolio],” he said. “As a value-add investor, there are still a lot of levers we can pull, including adding rooms and F&B, and leveraging extensions.”
Opportunistic deals spur market
Likewise, Legal & General Investment Management operational sector lead, Louise Burney said that the company remains active in the UK hotel market but as a buyer of individual assets rather than portfolios, identifying stock remained challenging.
“We have struggled to find core hotel assets, as a fund we have been very acquisitive this year, and will have invested c£500m across the real estate sectors,” she said
LGIM is seeking lot sizes in the £30 million to £80 million range, but has found a lack of core quality stock at that size. As a result, this year the company has also deployed capital into student accommodation after feeling the sector was “too hot before” and Burney said that LGIM’s transactions were often opportunistic, including investing in retail and offices which she believes are at the bottom of the market.
“We’re hoping to capitalise on being in a position with no debt before other institutional money comes into the market,” she said. “Institutional capital is moving more into operational opportunities, driven by ROI but also making it lower on the risk profile.”
London Attractive on Price And Yield
Archer Hotel Capital Investment Manager, Portfolio & Fund Management, Alison Hargreaves, has also been active in the London hotel sector, including the 2022 sale of The Dilly and the more recent acquisition of the two Hoxton-branded hotels. However, she stressed much of this has been around opportunity.
“We didn’t have a specific London target, it was really down to pricing and yield,” she said. “We did an analysis and looked at all the London deals over the past 20 years and pegged them with 10-year gilts. That meant we got comfortable that we were buying at the right price.”
The company has set up its own management platform and manages about half of the assets itself, although she said the company is assessing whether it deploys more capital in London.
“We’ll consider investments opportunistically but could be more in the wait and see camp as we look at things long term. I don’t see a huge spike in deals next year but it will be a more crowded market [of investors],” she said.
Meantime, Pandox SVP Transactions Jacob Rasin added that his business and been enthusiastic over the UK market having partnered with Axiom and has expanded from one hotel with the operational specialist in 2002 to nine properties now.
The company typically targets assets in the £40 million to £50 million range in what Rasin said was a strategy that kept the transactions “under the radar of private equity” but said the policy currently is to “wait and see” over further acquisitions.
“We can take the operational exposures, and value add, but there are more buyers coming in so may be heading home to buy in Scandinavia,” Rasin added.