London hotel purchases dried up amid political uncertainty

Property investors retreated almost entirely from London’s hotel market in the final months of 2022 when political turbulence knocked buyer appetite, but a bounce back is expected, according to a report.

Real estate data firm CoStar Group said spend on hotels and hotel development sites in the capital reached just £1.5 billion in 2022. That was a 30% drop from the prior 12 months and the lowest annual spend in nine years.

The weakest period was in the final quarter of 2022, although the London performance still fared better than other parts of the UK. Last week the Evening Standard reported that office sales had also plunged following the disastrous September mini-Budget.

Cristina Balekjian, director of UK hospitality analytics at CoStar Group, said: “London hotel investment was on course to surpass 2021’s volumes until the mini budget and its impact on an already inflationary environment meant some investors chose to retreat from the market and deals fell through as a result.”

Balekjian added: “While the first half of this year will continue to reflect this dampened demand, we expect there to be an uptick in investor interest in the latter half of 2023. London is still an attractive city to many, particularly in the hotel sector, and given the weak pound, there will be competition for the best assets.”

The company said with debt markets expected to stabilise and inflation due to come down by mid-2023, investor confidence and appetite is set to improve.