Hotel Update
Operationally, the past few months have seen solid 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.
“Edinburgh remains a top performing destination with the second highest occupancy in the UK across 2024, at 84.6% (behind York at circa 86%) and the second highest ADR at £159, behind London”
With regards to top-line performance data, UK hotels occupancy in March 2025 remained relatively flat year-on-year (73.8% compared to 73.5%) but edged up slightly from 76.1% to 76.8% in London (Hotstats).
Average daily rates (ADR) of occupied rooms in the UK saw a small decrease from £129.42 to £128.23 in March year-on-year, and from £181.14 to £177.04 in London.
Edinburgh remains a top performing destination with the second highest occupancy in the UK across 2024, at 84.6% (behind York at circa 86%) and the second highest ADR at £159, behind London. The city saw RevPar growth of circa 13.0% across the year, the highest in the UK.
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, albeit utility costs appear to be dampening for now. However, the top-line performance should hopefully continue to offset the cost challenges hoteliers are facing.
The cost issue has 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. According to UK Hospitality, these changes are projected to result in a 10% rise in employment costs per employee. Nevertheless, stronger operators are expected to absorb much of this impact through higher revenue per available room (RevPAR), driven by anticipated growth in demand.
These cost pressures on staff could however prove beneficial in the longer run. Proactively embracing change and acknowledging the strategic role of technology will enhance operational efficiency through streamlined processes, support more sustainable practices that lower operational costs, and strengthen competitiveness by enabling closer monitoring of market trends and maximisation of revenue growth.
Although the first quarter of the year showed encouraging signs of renewed consumer spending, ongoing uncertainty around US tariff announcements may have dampened this momentum. While the tariffs themselves are unlikely to directly affect UK hotels in a major way, the broader implications for global consumer confidence and the wider economy mean the sector is not entirely insulated. The effect on both international and domestic travel plans also remains uncertain.
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.
