HOTEL values rose by 4.6 per cent during 2000, ahead of the retail price index, but once again behind residential house prices, making it another good year for buyers using equity from their homes to acquire a better value business.

According to latest research by Christie & Co, whose southern base is at Winchester, the year was dominated by Granada's merger with Compass and the subsequent decision to sell-up to £3 billion worth of hotels. As a result, a significant number of hotels will be in different hands this year.

It predicts that it is highly likely that this year will see further talks taking place between major operators with the distinct possibility of mergers between mid-market players, as indicated by the aborted talks between Principal Hotels and De Vere.

Christie & Co director Simon Hughes says: "The prize for those who successfully negotiate such a deal is increased market share and economies of scale. In essence, the big will get bigger."

Christie & Co also foresees an increasing challenge to the mid-market from super budget hotels offering full services,

including limited conference facilities. Commenting on the market, Chris Scragg, chief executive of Marston Hotels, says that two and three-star hotels which have not invested in maintaining their properties, are bound to be squeezed by the growth of budget hotels.

The year saw a good volume of hotel deals, amounting to well in excess of half a billion pounds worth. Many of these deals were completed on behalf of private purchasers who were not discouraged by an apparent stabilising of the market. "Apart from a strong residential housing market, which has encouraged first-time buyers into the market, purchasers are also being encouraged by the attitude of lenders to the sector, keen to finance quality businesses to quality operators," says Mr Hughes.

"However, London saw considerably fewer hotel transactions than in 1999, despite improved trading performances across the board. The problem was certainly not a lack of potential buyers, but a distinct lack of motivation on the part of hotel owners to sell. As the year drew to a close however, this situation started to ease and a number of significant deals were completed in November and December."

Last year also saw the growth in

townhouse hotels. "Increasingly, these stylish niche properties are being seen

outside London in the UK's major towns and cities and we believe there will be

considerable growth in this sector during the next decade," Mr Hughes predicts.

Pat McCann, chief executive of Jurys Doyle Hotel Group, says that he expects branded hotels to increase its market share. "About 25 per cent of UK hotels are branded or flagged properties and my view is that figure will continue to grow either through conversion or new build. While it will never reach the 75 per cent level in the USA, there will be a substantially higher level of branded hotels in the next five years."