THE QUARTER OF RECKONING COMETH

Is this it? Is it time for the Quarter of Reckoning *does voice*?

It feels as though we have been forecasting the Quarter of Reckoning ever since the quarter was first considered as a unit of measurement, but it appears that the ends of tethers have been reached and the shakeup is here.

That’s at least the view of the brokers, who have a) and vested interest and b) a courtside seat. The Jay Zs of the transactions market, if you will. Checking the cheddar like a food inspector.

Knight Frank’s review of 2023 reported £2bn of UK hotel transactions, with the fourth quarter the strongest quarter for investment into the sector, with £615m of deals, representing 31% of the total annual investment activity.

The group anticipated that the increase in investor activity would continue to build momentum through 2024, “with investor demand and a narrowing of seller vs buyer expectations together with possible interest rate stabilisation or even cuts, all boding well”.

Henry Jackson, partner & head of hotel Agency, Knight Frank, added: “We have seen an encouraging uptick in investor activity at the end of 2023, with demand for London hotel assets particularly positive. Geopolitical tensions have potential to limit overseas capital flows, and the upcoming UK and US elections are likely to weigh in on investment decisions. 

“Yet, 2024 is expected to be a pivotal year, we anticipate that with the higher yields associated with operational real estate and the living sector driving an increasing allocation of capital, hotel investment will recover at a more buoyant pace as the year progresses. Hotel property continues to offer value and diversification of risk, and with hotel yields stabilising and trading expected to maintain its momentum despite low economic growth forecast, we envisage a greater volume of diversified capital to be deployed into the sector in 2024.”

London was very much the theme at the end of the year, with the sale of the two Hoxton hotels to Archer Hotel Capital for £215m. Demand for high-quality London hotel assets with strong brand recognition, combined with the capital’s ongoing recovery in hotel trading performance, has seen London’s hotel values per room increase by 22% year-on-year.

More of the same was seen in this month, with the Starwood Capital Group’s acquisition of a portfolio of 10 hotels from Edwardian Group.

Gratifyingly, Tim Abram, managing director, Starwood Capital, backed everyone’s non-controversial ‘yay London’ view, by commenting: “We are delighted to have had the opportunity to acquire this one-of-a-kind portfolio of Central London freehold hotels. London is one of the world’s most sought-after hotel markets, and this portfolio enables to us gain exposure on a unique scale to London. We plan to invest significant capex during our ownership into further enhancing the hotels. 

Christie & Co was good enough to support the concept of the Quarter of Reckoning, at least in passing, adding that “a progressive uptick in distressed cases has emerged and should lead to more consensual and forced sales during the course of this year”.

It seemed that all parties were being more reasonable last year, with the bid-ask spread between sellers seeking value for strong trading performance and buyers having to factor increased debt costs into their pricing narrowing. This translated into a 4.1% drop in Christie & Co’s hotel price index for 2023.

Carine Bonnejean, managing director, hotels, Christie & Co, said: “We saw a notable increase in deals agreed during the second half of the year as well as an uprise in distressed cases which will boost investment volumes during the course of 2024. Activity has already picked up during the first few days of this year with a call to action from owners and lenders in particular.”

The crystal ball works. That or even a stopped clock tells the right time twice a day. A new year of activity awaits.

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