The commercial real estate landscape is shifting, with institutional investors and private equity firms increasingly seeing hotels as a strong investment opportunity, writes Richard Fridd, Head of Development Services.

This trend, accelerated by post-pandemic market dynamics, represents a strategic pivot from traditional asset classes such as offices, with data showing that UK hotel investment reached £5.75 billion in 2024, more than doubling 2023 levels.

Private equity firms are particularly drawn to the sector’s unique financial characteristics, as opposed to assets which are typically underpinned by full repair and insuring (FRI) lease structures. Hotels tend to have management agreements where all operational costs and risks fall directly to the property owner. That provides more control but at the price of greater real estate risk, which needs careful and clear technical advice.

Pricing elasticity is also a key attraction, with hotels offering flexibility compared to static commercial properties. Often, what appeals to private equity investors about hotels is dynamic pricing: unlike offices where they might wait five years for a rent review, hotel room prices can surge from £100 to £500 overnight if, for example, a star like Taylor Swift announces a tour.

Workman’s involvement in the hotel acquisition process for private equity clients such as Tristan Capital Partners and KKR has spanned services including: technical due diligence; fire safety assessments; client representation; project management; and development monitoring. In all instances a rapid and focused response is needed, rather than a more traditional TDD process.

The sustainability dimension is also critical. Forward-thinking investors are assessing hotel portfolios not just for financial returns, but for sustainability credentials. Workman’s recent technical due diligence for various private equity investors has included comprehensive sustainability assessments, and environmental surveys, reflecting this evolving investment approach.

Not just a place to stay

Workman has recently supported Tristan’s acquisition of easyHotel, which included 32 hotels across the UK and Europe. Delivering a focused strategic analysis and technical due diligence process in less than eight weeks, the team identified key risk areas, ultimately providing a comprehensive assessment of the portfolio’s risks and potential, as well as mitigation solutions that supported commercial negotiations.

The trend extends beyond budget hotels. Luxury, lifestyle, and boutique hotel segments are equally attractive, with investors seeing opportunities in experiential travel and evolving consumer preferences. Workman has provided technical due diligence and pre-acquisition advice in an upscale UK-wide hotel portfolio deal, including several high-risk buildings that require Building Safety Regulator review and oversight.

Meanwhile, the conversion trend is equally compelling. Institutional investors are increasingly targeting properties such as vacant office spaces that have the potential to be transformed into hotels. Workman is currently supporting a private equity investor in the conversion of two central London office buildings to hotels in multi-year developments with the combined value of more than £60 million.

Geographical diversification adds another layer of attractiveness. Hotels offer investors exposure to multiple markets simultaneously, with management agreements allowing for centralised control across culturally diverse locations. However, the strategy is not without risk. Successful hotel investments require deep sector understanding, sophisticated asset management and the ability to navigate complex operational landscapes.

As traditional commercial real estate continues to face challenges from remote working and economic uncertainty, hotels represent a dynamic, resilient asset class. For investors willing to embrace complexity, hospitality offers a compelling investment opportunity.

This article first appeared in Commercial Real Estate (CRE).