Hotel investment volumes in London declined by 35.4% year on year during the third quarter of 2020 to £1.4b, according to new figures released by property company Savills.
However, the UK investment market performed better than its European neighbours amid the Covid crisis, with overall investment activity across the continent declining by 56.3% to €7.2b (£6.5b).
Germany, in line with the pace of its operational recovery, showed a less pronounced year on year decline, down 34% to €1.43b (£1.3b).
Investment volumes have been adversely affected by the dramatic fall in hotel occupancies. Across major markets throughout Europe, occupancy rates grew to 38.6% between July and September, up from a historic low of 15.3% at the height of the pandemic.
Meanwhile, occupancy rates in the UK reached 46% during September, with London lagging behind at 29%, according to data from STR. Regional areas such as the Lake District and the counties of Dorset, Devon and Cornwall benefitted from high leisure demand with occupancies over 85%.
Richard Dawes, director, Savills hotels team, EMEA, added: "Difficulties in obtaining debt amidst weak operational performance has acted as a significant barrier to entry for many investors. However, the long-term fundamentals of the hotel investment market have supported ongoing interest, resulting in a number of key deals completing over the last six months."
Savills said that an increase in sale and leaseback agreements to help hotel groups improve their balance sheets is expected to become an ongoing trend.
The company recorded a total of £4.6b worth of UK hotel transactions during 2019.