Hotel Update
Operationally, the past few months have seen continued strong top-line performance in the UK hotel market, with Average Daily Rates (ADR) and RevPAR appearing to now stabilise at a sustainable rate, following the rapid post-covid recovery seen in the previous couple of years.
According to Hotstats, UK hotels occupancy rose from 76.6% to 79.1% year-on-year in November and 70.3% to 71.6% in December, with the London market also seeing an increase, from 79.6% to 82.8% in November and from 78.8% to 81.4% in London . A steady Average Daily Rate helped push up year-on-year RevPar figures for the UK market across both months.
Airport passenger numbers saw an uptick, suggesting international travel has continued its recovery. The US economy is expected to continue to grow strongly under the new presidency, which combined with a strong US dollar, should make tourism more attractive and flow through to positive top-line figures for sub-markets popular with US visitors, particularly London and Edinburgh.
“According to Hotstats, UK hotels occupancy in November rose from 76.6% to 79.1% year-on-year”
As per our last update, the sector continues to face ongoing cost pressures. While inflation appears to be under control, the industry is still dealing with elevated staffing and utility costs, which are continuing to affect profitability. However, the strong top-line performance continues to offset the cost challenges hoteliers are facing.
Looking ahead, the cost issue has been further intensified by the recent budget, which includes an increase in employer National Insurance Contributions and the National Minimum and National Living Wage in April 2025. While many hotel staff are paid above the minimum wage, this change creates a ripple effect, leading higher-paid employees to negotiate for increased wages in line with their skill sets and responsibilities. UK Hospitality has projected that these measures will result in a 10% increase in employment costs per person. Despite this, stronger operators are expected to mitigate much of this impact through higher RevPar figures, supported by anticipated demand growth.
With regards to Capital Markets, investors are increasingly moving away from ‘traditional sectors’ and toward the living sectors, with hotels taking a leading role. There remains strong demand, especially from institutional investors, for long-let franchises in prime locations. These investments are particularly appealing due to their index-linked rent reviews, strong tenant covenants, and the consistent consumer demand for hotel accommodation.
