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The £3B Question: Why Private Equity Is Piling Into UK Hotel Portfolios

After a few up-and-down years in the wake of the pandemic, the UK hotel market has caught fire in 2024, driven by private equity giants buying huge portfolios of mostly midmarket hotels. 

Four huge deals totalling £3B have either been completed or are in train so far this year, £1B more than in all of 2023. Starwood, Ares, Blackstone and KKR are buying portfolios that total more than 75 hotels across the country. 

A drop in the price of debt, realistic sellers, improving performance that includes the maligned business travel sector, and the emergence of a new breed of specialist asset managers have all combined to create a flurry of interest from the world’s biggest opportunistic investors. 


“All of these portfolios are being bought and sold for slightly different reasons, but there are some secular themes there,” CBRE Head of Hotels for Europe Kenneth Hatton said. “The balance between supply and demand for hotels is good, and performance compared to 2019 is not fully back but is almost ahead of 2019 levels, with the expectation of more growth to come.”

Starwood kicked off the spate of deals in January, buying 10 Radisson hotels in London from privately owned Edwardian Group for £800M. The four-star portfolio comprises 2,053 rooms and is the fanciest of the four big private equity trades. 

In May, Ares paid £400M for an 18-hotel, 3,028-room portfolio from Landsec, which was selling it as a noncore business line. The hotels were previously leased to AccorInvest on long leases, but as part of the deal, Ares agreed on a lease surrender with Accor and has taken over the operations. 

Two more deals are in the offing but not yet completed. KKR is reported to be buying a portfolio of 30 Marriott hotels across the country from the Abu Dhabi Investment Authority for £900M. ADIA bought a portfolio of 43 Marriotts from Royal Bank of Scotland for £640M in 2013 after the bank took control of them, and the sovereign wealth fund is now selling the remainder.

Lastly, Blackstone is in exclusive talks to buy Village Hotels from KSL for about £850M. Blackstone bought the chain of 30 midmarket hotels for about £485M in 2014. The deal would see Blackstone add a hotel chain to its UK hospitality assets like Bourne Leisure, which bought Haven holiday parks for £3B in 2021.

Hatton said big PE firms are looking at hotel deals across Europe. But the performance of UK hotels compares favourably with other markets, driven by the slow growth of new supply and demand that has steadily improved since the worst of the pandemic.

And Zoom didn't kill off domestic business travel, it seems. Both leisure and business travel from UK travellers is above 2019 levels, he said, citing HotStats and CBRE.

International business travel to the UK is only at 85% of 2019 levels, while international leisure travel is at 95%. That is largely due to a decline in Asian visitors, as U.S. visitor numbers are above 2019 levels. Hatton said he expects growth in Indian visitors to take international leisure travel levels above pre-pandemic highs. 

All that means that hotels look attractive right now relative to other real estate sectors. Investors remain wary of offices and retail, and while industrial is performing well, prices are still high. Hotels hit a sweet spot of offering good performance at relatively attractive prices. 

Financial conditions are also more favourable for debt-backed buyers like private equity firms as 2024 continues. 

“Debt costs are a lot less volatile than in 2023,” Hatton said.

Base rates have not dropped as quickly as most in real estate would have hoped, but longer-term swap rates, or the rates at which real estate investors borrow, have come down significantly since the middle of last year on the expectation that inflation will fall and rates will come down. 

KKR is in talks to buy a portfolio of Marriott hotels for £900M.

The five-year swap rate in the UK is down almost 150 basis points since last year. That makes using debt to buy big portfolios more profitable.

Buyers with a lower cost of capital, like the big German fund managers that private equity buyers were previously competing with for hotel deals, are out of the market, dealing with issues like redemptions from their funds. 

The prices that vendors are asking for portfolios have also come down.

“You’re starting to see the bid-offer gap between sellers and buyers compress,” Hyatt European Vice President of Acquisitions and Development Felicity Black-Roberts said. “Whether it’s time or vendors coming under pressure, prices are becoming more realistic.”

Hyatt works with investors that are potential new operators of existing hotels, and Black-Roberts said that despite prices dropping, the company is being asked to underwrite ambitious future income growth to justify them. The focus on midmarket hotels is partly down to the fact that they employ smaller staffs than full-service hotels and have been less exposed to wage inflation. 

The ability to increase income is one of the factors that draws PE firms to the hotel sector, Hatton said, and there are various ways to do this.

Investing money and improving the physical quality of older assets is one way. Improving sustainability credentials will be a major push for new buyers given that the institutional investors they will need to sell to now have stringent environmental, social and corporate governance criteria. 

Another strategy often used by private equity firms is bringing in a new brand or operator for some or all of the hotels. That process has already begun for Ares with the portfolio it bought from Landsec. Some assets might be of a high enough quality in a good enough location to move from a midmarket to a fancier lifestyle brand, appealing to travellers at a higher price point. 

Some buyers, like Blackstone or Starwood, are undertaking these changes using in-house teams, but Black-Roberts said a new breed of specialist asset manager is making it easier for real estate investors of any stripe to invest in the operationally intensive sector.

Ares and KKR have a history of investing in the sector. But KKR is still working with asset manager Amante Capital on UK deals, while Ares is working with EQ. 

“As the market has become more mature, there are an increasing number of third-party asset managers that are credible, and that is allowing more and more investors to come to the sector that we haven’t seen previously,” she said.