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CDL recently acquired the Holiday Inn London Kensington High Street – Image Credit IHG Hotels & Resorts
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The UK and Ireland hotel transactions market is expected to improve in 2026, but ongoing macroeconomic challenges, rising costs, and regulatory changes are causing delays and a cautious outlook among investors and operators.
Current State of UK and Ireland Hotel Transactions
Single-asset hotel sales continued to dominate the UK and Ireland transaction market over the past year, with only a few large portfolio deals. Industry experts anticipate a stronger 2026 for hotel transactions, but they also note that macroeconomic factors and recent changes to the UK budget are tempering enthusiasm.
Victoria Hills, a partner in corporate real estate at Macfarlanes, noted that deals are taking longer to close, a trend that has become more pronounced. She described 2025 as an “OK year” and suggested that while 2026 is set up to be positive, external economic forces could still impact outcomes.
Laura Wild, partner and global co-leader of hotels and hospitality at Bryan Cave Leighton Paisner, observed that the period leading up to the UK government’s November budget announcement was marked by nervousness among hoteliers and investors. However, the budget did not introduce major surprises that would significantly deter investment, and sentiment has since improved.
Impact of Macroeconomic Environment and UK Budget
The announcement of the UK budget led to a temporary pause in hotel transactions as investors waited for clarity. Wild explained that transaction volumes dropped in the fourth quarter as a result, but activity is expected to pick up now that the budget details are known.
Foreign investors continue to see the UK as a relatively safe market, partly due to favorable US tariff policies. However, both domestic and international investors are experiencing longer deal timelines, with increased focus on due diligence and financing.
Hills emphasized that business rates were a key focus of the budget and would significantly affect hotel transactions. Hoteliers will need to find ways to offset these costs, which could affect asset values and pricing. Wild added that there are real concerns about whether increased business rates and employee costs can be mitigated through technology, such as artificial intelligence.
Due Diligence and Financing Trends
The need for thorough due diligence has increased, with buyers spending more time and resources on evaluating assets and sometimes deciding not to proceed with deals. Hills pointed out that higher business rates and National Insurance contributions, effective from April, will further pressure hotel profit margins, forcing operators to seek additional efficiencies.
On the financing side, competition remains strong. UK banks are active in the market, and there is growing involvement from insurers, debt funds, and German banks. While refinancing activity is robust, acquisition financing and development financing are less common, partly due to high construction costs.
Private equity and cash buyers are active, and private credit is viewed as attractive. However, some funds are struggling to raise capital, further complicating the investment landscape.
Outlook for 2026 and Key Transactions
Looking ahead to 2026, Wild expects acquisition opportunities to increase, with hotels seen as a hedge against inflation. Private equity, high-net-worth individuals, and family offices are likely to remain involved in the market. Hills noted a rise in joint ventures, combining financial resources and operational expertise, particularly for larger portfolio deals.
One notable transaction in 2025 was the €1.4 billion sale of the Dalata Hotel Group portfolio to Pandox AB and Eiendomsspar, with Scandic Hotels selected to manage the properties. This deal stood out against a backdrop of declining portfolio transaction volumes, which fell to £750 million in 2025 from £3.1 billion in 2024, according to Savills. However, single-asset transactions strengthened, making up 85% of investment volumes last year.
Regulatory and Consumer Challenges
The UK government’s decision to allow city mayors to impose bed taxes adds a new cost for hotel operators, particularly impacting budget hotels more than luxury segments. Wild noted that while some tourists may benefit from favorable exchange rates, the post-pandemic “revenge travel” surge is fading and consumers are becoming more cautious amid the cost-of-living crisis. This is reflected in reduced spending on hospitality and the closure of some restaurants and pubs.
Conclusion
While the UK and Ireland hotel transaction market is positioned for potential growth in 2026, ongoing economic pressures, rising operational costs, and new regulatory burdens are delaying transactions and prompting a more cautious approach among investors. The market continues to adapt, with a focus on due diligence, efficiency, and flexible deal structures.
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