Christie & Co: Hotels – 2023 mid-year review
The review reveals that whilst market activity remained subdued in the first half of 2023 due to ongoing macroeconomic issues, hotels continued to change hands and many hotel operators reported positive trading results. This fuelled a continued disconnect between top-line revenues, asset pricing and financing challenges, resulting in a noticeable decline in UK transactions, which are typically the backbone of the European investment market.
Preliminary figures show that transactional volumes have been more than halved year-on-year. Additionally, the bid-ask spread between sellers seeking value for their record performance and buyers having to factor in debt costs in their pricing has widened. However, this didn’t halt the market entirely.
Individual deals dominated market activity due to the challenges around financing of portfolios in particular. Yet there remains no shortage of capital keen to invest in hotels as they have proven a good hedge against inflation, boosted by demand growth.
The report also provides detailed insight on each of the UK’s regional markets along with the European markets in which Christie & Co operates.
Looking ahead for the rest of the year, Christie & Co is confident that the second half of 2023 will be more prolific based on the uplift in deals agreed in recent weeks. The hotel sector has reaffirmed its ability to withstand a challenging trading environment over the past six months, but we may begin to see a shift over the next 12 to 18 months, to be accelerated by a stubborn inflationary environment and the most recent hike in interest rates.
Trading performance is expected to maintain its upwards, albeit decelerating, trajectory. Distress will most likely come from capital structure challenges as opposed to bottom line stress. Much debt that was deployed pre-pandemic will be maturing over the coming months, putting many in a difficult position to refinance. This may signal deal opportunities in the next 24 months due to lower LTVs, higher debt cost and downward pressure on valuations.
Carine Bonnejean, managing director of Hotels comments, “Whilst market activity remained sluggish for most of H1, we started to see some positive signs of a shift in the lead up to summer, suggesting that activity will be stronger during H2. We have brought several exciting opportunities to market in recent months, including a portfolio of coast & country assets with very strong interest received to date, which is a good barometer of buyer appetite. We remain optimistic that we will see increased opportunities throughout the rest of 2023.”
To read the full ‘Hotels: 2023 Mid-Year Review’, click here