UK hotel portfolio sales, in the first three quarters of 2008, have dropped by 86 per cent compared to 2007 while single hotel transactions remain firm in the current financial downturn, according to property consultants Knight Frank.

The company's latest research shows that hotel transactions as a whole are down by 69 per cent to just over £1.5bn, compared to £4.8bn for the same period in 2007. This is attributed to the steep decline in portfolio transaction, which dropped to £0.54bn (compared to £3.98bn in 2007).

Although sales in the single transaction market remained strong at £0.98bn, which remains in line with the level in 2007 at £0.95bn, the third quarter did see a 27 per cent decrease to £0.16bn compared to Q3 in 2007.

Dominic Mayes, head of hotels at Knight Frank, said: "UK hotels have managed to trade well during 2008, although in recent months rising costs are impacting profitability. This, in conjunction with a predicted drop in occupancy rates, particularly outside London, will undoubtedly impact the value of hotel assets which will in turn affect market sentiment."

The largest transaction this year was the sale of a 50 per cent share in the Jurys Inn chain by Quinlan Private to Middle Eastern company Oman Investment Fund, in August, worth a reported £157.8m. Mayes said: "This transaction demonstrates that the budget sector continues to attract interest from investors particularly from the Middle East."

The most notable sale, outside of London, to date this year, was the manage back deal between Starwood Hotels & Resorts Worldwide and Dubai-owned company Leisurecorp, for the 219-bedroom Turnberry Golf Resort in Scotland, for around £55m.

Dirk Holtgreve, senior analyst for Knight Frank's hotels team, said: "Although the current situation poses numerous threats for the hotel market, it also provide opportunities. We anticipate that financially strong corporate buyers and high net worth individuals will be able to secure assets that come on the market as a result of the challenging market conditions.

"Companies that are at risk are those that have applied high levels of gearing on their acquisitions or rent payments during a time when credit conditions were more favourable. These companies are now seeing their cash flows impacted by reduced demand and rising costs at a time when refinancing conditions are considerably less sympathetic.

"Strong performing assets and trophy assets in key locations that come to the market are still expected to exchange hands. Increased interest is anticipated from sovereign wealth funds, in particular from the Middle East, and specialist funds that are seeking to expand their portfolios."