Hotel Review Q2 2025

Read our latest publication - Hotel Review Q2 2025 where we offer insights into the current landscape and future of the UK hotel sector.

We are five years from the Prime Minister's announcement of the first Covid-19 lockdown, yet Covid-19 remains a near distant event that continues to preface many discussions around recovery in the hotel sector. However, the political and economic landscape that we have experienced during the course of the last couple of years, particularly following 2024's Autumn Budget, has given rise to a whole host of fresh and more prominent challenges.

2023 proved to be an exceptional year in terms of hotel's trading performance and, despite coming off the back of a strong year, 2024 continued to demonstrate resilience. London's performance has been supported by a continued recovery in overseas visitors, a rise in meetings and events, a resilient staycation market and a number of key events. 2024 Revenue Per Available Room (RevPAR) was broadly in line with 2023, and 2025 is again expected to generate a stable position, with potential modest growth. Regionally, forecasters are also anticipating improved RevPAR, primarily driven by guest demand and positive room occupancy movement as opposed to rate, and the traditional leisure hotpots such as the Lake District and Cotswolds, continue to attract a buoyant domestic staycation market.

To some extent, hotels' performance during the course of the last couple of years has been distorted by a significant number of hotels being operated under exclusive use accommodation contracts as temporary housing, thus out of commercial circulation.

According to STR, 95 new hotels providing over 9,000 rooms were added to supply in 2024 and a further 131 hotels providing almost 12,000 new rooms are in the 'Construction' phase with planned openings during 2025. Whilst the overall net gain in total room numbers is below these levels due to hotel closures, etc, inevitably competition for guest stays is intensifying. This will be exacerbated when hotels that are currently subject to exclusive use contracts return to the supply chain.

This increasing supply needs to be met with robust guest demand or, alternatively, a further reduction in room supply elsewhere in the chain if performance is to be maintained.

In this respect, VisitBritain's full year estimate is that the UK attracted approximately 41.2 million overseas visitors in 2024, representing significant 9% growth on 2023, up 1% on 2019 (pre-Covid). With VisitBritain forecasting over 2 million additional visitors for 2025, a further 5% increase, demand for room nights will rise.

Whilst economic uncertainty and the inflationary pressures witnessed in 2022 have subsided, the resulting retail price increases, rising operational overheads, growing living costs alongside the significant interest rate rises that were implemented to combat inflation have had a lasting impact on business profitability, disposable incomes and both operator and consumer confidence.

The Autumn Budget by the newly elected Labour Government announced a series of changes that have increased operational overheads for hotel businesses as rising minimum wage and increased NIC employer taxes come into play. The sector also faces significant business rates rises as reliefs come to an end and the rates payable multiplier is set to increase. This has done little to steady the sector nerves.

Nevertheless, UK hotel transaction volumes in 2024 amounted to around £6billion, marking the highest level of activity in the sector since 2019. Transactional activity was, however, dominated by major portfolios and only a handful of deals accounted for over 50% of transaction volumes. Single asset investment is estimated to have accounted for less than 25% of total volumes, under half of which took place in regional UK.

Liquidity within the hotel market has been hampered by weakened sector confidence, a diminished pool of funders and high cost of debt, limited distress and a continued disparity between buyer and seller pricing expectations.

Inevitably, the sector's many challenges around competition, overheads, mounting capex requirements and the heavy burden of increased costs of finance will give rise to some distress, and a rising occurrence of proactive asset management by lenders.

Alongside this, weary owners and investors that have deferred exit decisions during recent years (in the hope of reinvigorated market buoyancy and increased values) will lose patience in the face of a toughened outlook. As a result, more hotel opportunities will come to market and increased stock levels will encourage a narrowing of the buyer/seller price gap. With pent up demand from a ready pool of buyers keen to invest in properly priced opportunities in an operationally resilient property sector, market activity and transaction volumes will rise.