Last week, Gowling WLG's Hotels Team attended the Annual Hospitality Conference in Manchester. Here are some trends, predictions, and legal considerations for the Hotels market in Q4 2024 and 2025.

1. Return of the price-sensitive traveller

With "revenge travel" over, consumers are back to becoming cost-conscious, which favours the budget and extended stay models, albeit the higher the hotel class, the higher the RevPAR.

2. Private Equity is active

Private Equity transactions are up 40% from last year, though much of the increase came from just a handful of portfolio deals. Once there is parity between bid and ask (of which there are positive signs), single asset transactions are expected to come to market more swiftly.

3. Construction is still pricey

There's no doubt that ground-up development allows hoteliers to put their own personal mark on a hotel, but the cost per key doesn't present many opportunities in current conditions, unless they are in a prime location. Coupled with contractor challenges and insolvency, the number of new developments next year will still be lower than pre-pandemic levels.

An exception to this would be on larger schemes, such as stadia development, where hotels are a key component. Also local council-supported regenerations where hotels are included in placemaking, such as the heart of the city project in Sheffield which features a Radisson Blu with a Grade I listed façade.

4. Hotels are not immune to planning constraints

Across the Living sector, we have seen calls for planning reform for new developments, with out-of-date local plans hindering growth. Some hotel developers have resorted to accepting planning risk and acquiring office buildings in city centre locations with the intention of repurposing, which also has significant environmental benefits. We may see changes to permitted development under a Labour government.

5. Regulation is black and white

From a legal perspective, there is still a current hotel exclusion in the Building Safety Act 2022. However, the consensus between investors is that any Fire and Safety risk is factored into pricing. Have a look at this article to see what you need to know about hotels and building safety.

6. Fit the model to the asset

Investors, developers and operators are considering a wider variety of ownership models, including more innovative lease structures as well as hotel management agreements and franchises.

7. Amend and pretend: Survive To '25?

To date, there have been few distressed assets in the hotels market, as a result of leniency from banks towards overleveraged borrowers. Assuming a reduction in interest rates next year, this will likely remain until 2025.

8. Debt is available

For the more opportunistic investors, the debt market has become more competitive with a larger pool of lenders. See our recent advice to Veld Capital and Maya Capital to fund a new hotel in central London. Borrowing is available, however lenders are more scrupulous to ensuring the size of debt is sustainable to the project, looking at Net Operating Income (NOI) as well as Loan to Value (LTV) and expecting owners to invest into their assets to ensure maintenance and competitive edge.

9. Employment law reforms would impact the Hotels market

Often referred to as a 24/7 marketplace, the hotels industry would certainly be impacted by a four-day work week, or proposals relating to zero hours contracts and restrictions to shift scheduling. Take a look at this article to see what you need to know about employment law changes in 2024.

10. Sustainability isn't going anywhere

There is still variance within hotel operators on the level of sustainability in their business, which is driven by consumer demand. However, we are now seeing Environmental, Social and Governance (ESG) considerations adopted at investor level, particularly "transition-ownership" Private Equity who factor in environmental performance on investments in order to ensure liquidity on exit and avoid stranded assets.

The market is also seeing more ESG clauses in loan documentation, and not just greenwashing. Together with reporting requirements, we expect this to become common practice in 2025. See our recent article on Taskforce on Nature-Related Financial Disclosures.

11. The importance of your professional team

As with any investment, with requirements for heavier due diligence, a wider variety of ownership models to consider, potential fire & safety risks and ESG considerations, it is more important than ever to ensure that you have experienced and proactive professional advisers to ensure you are making an informed decision and we are here to help.

Please have a look at our articles to read more about our advisory work which was discussed at the conference last week. These projects include Yotel Clerkenwell, a Rockwell on a deal with Aviva and also the sale of Grange Hotels.

For further information please contact Rachel Kerr and Philip Baker.