Hotel Update
Operationally, the past few months have seen sluggish top-line performance in the UK hotel market, with RevPAR appearing to now decline marginally across the board after a period of relatively sustained data.
With regards to top-line performance data, hotels occupancy in May 2025 fell marginally both in London (82.5% to 82.2%) and across the UK as a whole, from 79.8% to 79.4% (Hotstats). Average daily rates (ADR) of occupied rooms in the UK saw a small decrease from £152.90 to £149.10 in May year-on-year, and from £218.30 to £206.90 in London.
Macroeconomic uncertainty may be affecting consumers’ decisions towards travel, with the domestic market struggling. An increase in living costs as inflation edges higher, coupled with a looser labour market, may be influencing consumers to switch some overnight stays for day trips.
As per our last update, the sector continues to face ongoing cost pressures as the industry is still dealing with elevated staffing costs, this having been further intensified by the increase in employer National Insurance Contributions and the National Minimum Wage which took place in April 2025. While many hotel staff already earn above the minimum wage, increases to the wage floor can trigger a ripple effect, prompting higher-paid employees to seek raises that better reflect their skills and responsibilities.
“Throughout the remainder of the year, UK hoteliers are expected to face continued pressures as weaker trading performance weighs on profitability amid rising operational costs from higher wages, National Insurance contributions, and business rates”
Given staff are essential to provide customer experience and can only be reduced to an extent, hoteliers are increasing investment in technology in order to improve efficiencies and support more sustainable practices that lower operational costs and strengthen competitiveness. As such, these staffing cost pressures could prove beneficial in the longer run.
Throughout the remainder of the year, UK hoteliers are expected to face continued pressures as weaker trading performance weighs on profitability amid rising operational costs from higher wages, National Insurance contributions, and business rates.
Geopolitical tensions, coupled with the repercussions of President Trump’s tariff policies on the US dollar, may be exerting a negative influence on the UK hotel sector—particularly in markets with a significant proportion of international visitors, such as London and Edinburgh. According to data from the US International Trade Administration, outbound travel from the United States to the United Kingdom declined by approximately 3% in May and 6% in June. Concurrently, the depreciation of the US dollar relative to the British pound has constrained hoteliers’ ability to sustain room rates for international guests originating from the United States, this potentially diminishing the UK’s appeal as a travel destination due to the increased relative cost for foreign visitors.
With regards to Capital Markets, Hotel investment volumes reached £1.59Bn, with a marked shift towards single-asset deals and regional diversification beyond London. Prominent buyers included institutional investors who accounted for a significant proportion of H1 volumes. We anticipate the sector to see further single-asset deal activity, with institutional capital targeting branded assets and value-add opportunities.
