Despite the UK’s worsening economic issues, the country’s hotel sector is perhaps the one bright light in the hospitality industry.
RSM head of hotels, travel and tourism Chris Tate says the British public’s desire for domestic travel remains undiminished, with the RSM Consumer Report showing that 28 per cent of Brits are planning a long-stay UK holiday while 33 per cent are planning a weekend away in 2025.
However, he adds despite the positive news the picture is not entirely rosy, with winners and losers apparent in the hotel sector.
Tate says: “The story of the year so far is that people still want to travel, with occupancy in UK hotels higher than last year and it was already pretty strong last year.
“The negative side of it is that although occupancy is higher, hotel rates over the last few years have gone up significantly and that has now plateaued.”
RSM data certainly backs this up, as over the first seven months of the year, only March and May 2025 had lower occupancies of just 0.4 and 0.2 percentage points respectively compared to 2024 while June and July saw peaks of 83.3 per cent and 86.2 per cent in the UK.
This is in contrast to average daily rates where only January and July saw higher rates than in 2024, peaking at £184.34 in July.
Tate adds the luxury and midmarket hotel sector have been the main beneficiaries of the improved outlook which has driven consumer confidence, with budget hotels taking the biggest hit.
He says: “When the cost-of-living crisis first arrived budget hotels really benefitted because people still wanted experiences but they were obviously doing it on a cheaper level.”
And it is this focus on experiences that is continuing to fuel the British public’s appetite for travel and they are prepared to cut back on eating out and shopping to afford it.
Much of this trend is driven by Millennials and Generation Z, both of which have increasing amounts of disposable cash while Baby Boomers continue to prioritise experiential spend.
Inbound markets
Tate adds the UK remains popular for international travellers as it is viewed as a safe destination while the retreat from the US by many travellers in 2025 means some will inevitably visit the UK instead.
And there is definite optimism in the inbound market in the UK, with national tourism board VisitBritain at the start of the year predicting that international visitor numbers would grow by five per cent to 43.4 million and spend £33.7 billion, seven per cent more than in 2024.
Tate also believes that sustainability is again becoming increasingly important for travellers who have often associated it with more expensive product, although he adds there is still a difference between what people say and do.
“Some individuals might want to go to a sustainable hotel but if it costs an extra £100 a night, they might not,” he says.
Instead, he argues that much of the focus on sustainability is being driven by business travellers who work for companies keen to highlight their green credentials by booking such properties.
The positive news also comes despite hotels seeing their costs ramp up thanks to the Labour government’s increase of employer-paid national insurance from 13.8 per cent to 15 per cent while dropping the wage threshold for them from £9,100 to £5,000 in April this year.
The move has caused outrage in the UK hospitality sector with trade body UKHospitality chair Kate Nicholls in August blaming the changes for nearly 89,000 job losses in the sector, 54 per cent of the 164,641 jobs lost in the UK since the changes were first announced in the September 2024 Budget.
Tate agrees the changes have been detrimental, adding: “When you increase the minimum wage it’s not just the lowest paid that benefit because their managers want an increase too.
“There was a dent in profitability to start with and although hotels were unable to pass on all the cost to their customers, they were able to sell more rooms.”
Looking ahead, Tate argues the UK hotel sector’s future looks strong, particularly as the UK government targets 50 million inbound travellers to the country by 2030.
He says: “There are lots of people building hotels at the moment as there just aren’t enough of them.
“Conversion of office space into hotels is also another option and that sounds like a good thing to do until it always ends being more expensive than just knocking it down and rebuilding.”
US investor interest
Savills UK and pan European director, hotel capital markets Richard Dawes agrees that while the strength of the domestic and international markets is whetting investors’ appetites, the comparative strength of the dollar to the pound has driven US private equity interest in the UK market.
Savills data shows that 2024 saw the return of portfolio acquisitions which totalled £3.12 billion, 54 per cent of total volume and 60 per cent more than the 10-year average.
Of this total, US private equity firms spent £2.62 billion, 490 per cent more than the 10-year average, thanks to deals including Blackstone’s acquisition of the Village portfolio and KKR and the Baupost Group’s purchase of 33 Marriott UK properties.
Dawes says: “The London market benefitted dramatically from the US dollar in the high-end luxury space and that’s been a keen driver of strong domestic growth.”
He adds this will likely drive a market for single-asset transactions of some London’s most famous hotels with properties like the 708-room Holiday Inn London on Kensington High Street and the 732-room St Giles Hotel on Tottenham Court Road both going on the market in February 2025 with a potential combined value of more than £500 million.
Dawes says: “London provides more opportunities to deploy more capital on single assets because of the size of those buildings and the value of each room.”
Savills head of hospitality thought leadership, EMEA Thomas Emanuel adds: “London is one of the very few global cities in the world so the demand drivers for London are never ending, whether you’re looking for leisure, corporate or MICE opportunities it’s got the infrastructure, the facilities and the connectivity.”
Dawes adds European investors are also interested in the opportunities the UK offers to hotel investors having spent more than £688 million in 2024, twice the amount spent the previous year.
Asian Pacific investors are also predicted to become more active despite a 77 per cent drop in volumes in 2024, largely as a result of some big deals in 2023, and are expected to look far beyond the capital in their hunt.
Dawes tips Edinburgh, Manchester, Glasgow and Bristol as key areas of interest outside of London, again thanks to their business credentials and leisure attractions.
“There’s an insatiable demand for that sort of product which is feeding the demand for hotels in those markets,” he adds.