Hospital Debt Market Update for Q3 2025

In the third quarter of 2025, the UK and European hotel debt markets are displaying signs of stabilization as interest rates continue to decrease gradually. Lenders are adopting a selective approach, but there is a noticeable increase in refinancing activities, especially for high-quality assets in major cities and prime locations. Private credit is becoming increasingly important, offering tailored solutions in cases where traditional banks are hesitant to take on perceived risks.

Refinancing activities in the market have seen significant deals, such as the £75 million refinancing of the QHotels Collection Group’s UK resorts and The Social Hub’s €80 million refinancing deal for properties in Florence and Bologna. These transactions indicate a strong interest from both UK and European banks in financing hotel assets.

Private credit lenders are exploring unconventional opportunities to generate returns that traditional banks might avoid. Notably, there is increased activity in the £/€50-150 million range, providing customized structures for sponsors looking to refinance or reposition their assets.

The liquidity in the market continues to be strong, with competitive financing available for prime assets, even though transaction volumes remain below pre-pandemic levels. Some lenders are offering historically low margins, despite the slow return to lower SONIA levels.

In terms of the macroeconomic environment, the UK GDP growth has been challenging, with inflation easing to 4.8% RPI/3.8% CPI. The Bank of England’s recent rate cut to 4% has reduced sterling-denominated debt costs, incentivizing borrowers to refinance existing debt. In the Eurozone, the three-month EURIBOR rate is significantly lower at 2.06%, encouraging borrowers to refinance euro-denominated facilities due to relatively low borrowing costs in real terms.

UK commercial bank lenders remain cautious, focusing on prime assets in London and gateway cities. Senior debt is available at competitive rates, with Loan-to-Value ratios around 55-65% for prime assets and tenures of 5-7 years. European commercial bank lenders offer lower margins for euro-linked facilities, with additional options for hotel development finance facilities at historically low rates.

Private credit lenders in both the UK and Europe are actively participating in the £/€50-150 million range, providing tailored solutions for refinancing or repositioning assets. They are targeting unconventional opportunities where traditional banks are not willing to underwrite loans, bridging a crucial gap in the market for smaller loan facilities.

Looking ahead to the fourth quarter of 2025, interest rates are expected to remain stable in the UK and the Eurozone. UK banks will continue to focus on prime assets, while European lenders may play a significant role in cross-border deals. Private credit is expected to remain a key alternative for bespoke financing solutions.

In conclusion, the hotel debt market in Q3 2025 is showing signs of stability and promising activity. Sterling and euro-denominated refinancing options are attractive, with high-quality assets in London attracting bank financing. Private credit lenders and European banks are providing flexible solutions for prime and transitional assets. The market is poised for controlled growth in the coming months, presenting various opportunities for well-prepared sponsors.