United Kingdom Hospitality Market – Mid-2025 Analysis

Macroeconomic and Demand Backdrop

The UK’s economic climate in early 2025 provided a mixed backdrop for the hotel industry. GDP growth accelerated to +0.7% in Q1 2025, the fastest in the G7, driven by a strong services sector. However, clouds are forming on the horizon: rising global trade tensions, new tariffs, and April’s tax increases threaten to curtail growth in H2 2025. Business and consumer confidence indices have weakened – the ICAEW business confidence monitor turned negative for the first time since 2022, and consumer sentiment fell to its lowest level since late 2023 (GfK index at -23 in April) amid cost-of-living concerns. While Oxford Economics slightly upgraded its 2025 GDP forecast to ~1.2% (given the Q1 surprise), it cut 2026 to 0.9%, reflecting expected lost momentum as business investment falters. In short, the macro environment is one of modest growth with significant uncertainty, which tempers demand expectations for hotels.

On the travel demand side, the year started softer. Corporate travel remained subdued and leisure consumers became more price-sensitive, leading to weaker hotel trading in Q1 2025. A dearth of major events and lingering economic uncertainty further dampened demand in early 2025. Still, industry outlook is cautiously positive – with expectations for moderate revenue growth ahead – largely because new supply remains in check (supporting occupancy) and travel volumes continue to recover. For the first five months of 2025, RevPAR was ~1% lower year-on-year, with March being the weakest month due to an unfavorable Easter calendar shift. Notably, regional UK hotels outperformed London in this period, as London operators struggled to push rates in a competitive market. Weekday demand (a proxy for business travel) lagged the prior year, whereas weekend leisure held up better – weekend occupancies ticked up slightly, but ADR gains were nil with travelers remaining extremely value-driven on rate. This dynamic – soft midweek corporate demand, resilient but rate-sensitive leisure – underscores the fragile demand recovery as of mid-2025.

Major events continue to play a pivotal role in hotel demand, especially in key cities. A number of high-profile sporting events and concerts in 2024 drove spikes in local hotel performance, highlighting the importance of events-driven compression nights:

• Sporting events: The Six Nations Rugby Championship boosted hotel revenues in host cities like Edinburgh and Liverpool, and ongoing Premier League and football matches in Manchester and Liverpool remain year-round demand generators. Similarly, the 2024 Open Championship golf tournament provided a notable summer uplift in parts of Scotland (e.g. Glasgow benefitted last July).

• One-off concerts: Major tours had outsized effects on regional markets. For example, Taylor Swift’s Eras Tourdrove substantial RevPAR gains across various cities – London experienced its biggest RevPAR spike of the year in mid-August 2024 when the tour’s European leg concluded in the capital. This year (2025) may see a similar bump from the anticipated Oasis reunion tour, albeit likely on a smaller scale.

• Event outlook: The 2025 event calendar is lighter, which could leave certain markets missing last year’s boost. Glasgow, for instance, will not have The Open this year and may see softer summer performance absent a major event. On the other hand, Northern Ireland is poised for a demand surge in July 2025 as it hosts The Open at Royal Portrush, which should fill regional hotels.

International inbound tourism is another critical demand driver moving forward. VisitBritain forecasts a 5% rise in overseas visitors in 2025, with visitor spending up 7% (nominal). This comes on the heels of a record year for inbound travel in 2024, which saw pent-up international demand materialize. Heathrow Airport, for example, handled nearly 84 million passengers in 2024 (+6% YoY). There are early signs of softening – Q1 2025 international arrivals at Heathrow were down ~2% YoY, owing in part to Easter timing – and global geopolitical shifts (such as U.S. policy changes) introduce downside risk to UK inbound travel. Nonetheless, foreign tourism remains a growth pillar for 2025, buoying key gateway markets like London and Edinburgh. Barring a significant shock, continued recovery in international visitation (especially from Europe and the Middle East to offset any dip in long-haul American visitors) should sustain stable room-night demand growth through the year.

Market-Wide Performance Metrics (Occupancy, ADR, RevPAR)

By mid-2025, overall UK hotel performance has largely normalized to pre-pandemic levels, with the frenetic post-lockdown rebound giving way to steadier trends. Nationwide occupancy is hovering in the high-70s percentage range. For the 12 months ending June 30, 2025, occupancy averaged 77.4%, effectively flat year-on-year (0% change) and roughly equivalent to 2019’s occupancy (which was 77.3%). This indicates that the volume of room nights sold has fully recovered from the pandemic shock. However, growth has plateaued: after the huge leap in 2022 (occupancy +37.7% and RevPAR +76% as the market reopened) and a solid advance in 2023 (occupancy +5.2%, RevPAR +14% YoY), 2024 saw only modest gains. Occupancy in 2024 ended at 77.7% (up just +0.6 points from 2023), and RevPAR reached $129.8(≈£95) per room (+2.6% YoY). Average daily rate (ADR) growth shouldered most of that increase – ADR hit $167(£123) in 2024, up ~2.0% – as pricing power began to stabilize.

So far in 2025, performance is tracking slightly below last year’s pace. Year-to-date (YTD) through May, occupancy stands around 73.3% (about -0.8% vs the same period 2024) and ADR around $150 (flat, -0.1% YoY), resulting in a RevPAR of ~$110, about -0.9% YoY. In other words, RevPAR is down ~1% in the first half – a minor dip attributable to the Q1 softness discussed earlier. This mild pullback follows 2024’s essentially plateaued growth, reinforcing that the market is entering a stable, mature phase of the recovery. Notably, in nominal terms the UK’s RevPAR now exceeds its pre-Covid peak – 2024 RevPAR was ~29% higher than in 2019 – thanks to significant ADR gains over the past four years. Much of that ADR growth reflects inflation and a higher mix of upscale rooms, but it underscores that top-line revenues have more than fully recovered on average. Going forward, occupancy is expected to remain in the mid-to-high 70s and ADR growth in the low single digits, yielding roughly flat to modest RevPAR changes. In fact, current Loan Analytics projections suggest full-year 2025 RevPAR will be slightly down (~2–3% decline) compared to 2024, implying a year of consolidation. This essentially equilibrium scenario – with RevPAR moving sideways – is a marked shift from the volatile swings of 2020–2022.

Within the overall market averages, there are some important spatial and temporal nuances:

• London vs Regions: Regional markets are performing relatively better than London in the current climate. London’s recovery has been held back by weaker weekdays and a reliance on long-haul travelers, whereas many regional and secondary markets have benefited from robust domestic leisure demand. As a result, London’s RevPAR growth has underperformed the UK average so far this year, and hotels outside the capital have seen comparatively stronger occupancy gains. Hoteliers in London are still struggling to drive rate growth in the face of cost-conscious customers. By contrast, some regional cities (especially those that hosted big events or that capture staycation demand) have even exceeded their 2019 performance on certain metrics. This divergence means that lenders and investors need to differentiate between the London market (late-cycle recovery) and regional markets (some still mid-recovery) when evaluating performance.

• Business vs Leisure Segments: The midweek corporate segment remains the soft spot in the demand mix. Corporate room nights and major conferences have not fully rebounded in London (e.g. the ExCel conference center hosted fewer large events in early 2025, denting midweek performance). Nationwide, hotels saw midweek revenue fall year-on-year in Q1, reflecting tighter corporate travel budgets and a slow return of international business trips. In contrast, weekend leisure demand is back to, or above, pre-pandemic levels in many markets – weekend occupancies were stable to slightly up this spring, albeit achieved through competitive pricing. Travelers remain extremely value-driven, so hoteliers have had to hold rates steady to keep leisure volumes high. This has kept weekend ADR growth flat even as occupancy improved. The net effect is that properties with a stronger leisure orientation (resorts, popular tourist destinations) are faring better than those dependent on corporate travel or conferences. This segmentation effect is likely to persist until business travel meaningfully picks up.

Class and Segment Performance (Luxury, Upscale, Midscale)

Performance varies not only by location and segment, but also by chain scale (class). Higher-end hotels have recovered more strongly in many respects, while the lower end of the market faces growth constraints. Table 1 summarizes key performance indicators by class for the past 12 months (ending June 2025), as tracked by the Loan Analytics database:

Table 1 – UK Hotel Performance by Class (12 months ending June 30, 2025)

Class/Segment	Inventory (Rooms)	Occupancy (12 mo)	ADR (12 mo)	RevPAR (12 mo)	New Supply Last 12 mo (rooms)	Rooms Under Construction
Luxury & Upper Upscale	134,365	75.4%	$315.73	$237.91	1,562	3,393
Upscale & Upper Midscale	317,750	77.1%	$146.57	$112.94	2,246	7,336
Midscale & Economy	268,608	79.0%	$105.11	$83.05	1,970	5,934
Total Market	720,723	77.4%	$166.95	$129.29	5,778	16,663

(Source: Loan Analytics , data as of 6/30/2025. Note: ADR and RevPAR are in USD, converted at 1.3721 USD/GBP.)

Several insights emerge from this breakdown. First, economy and midscale hotels run the highest occupancies (around 79% over the past year) – reflecting their ability to attract price-sensitive travelers in volume – whereas luxury/upper-upscale hotels run slightly lower occupancy (mid-70s%) but at far higher room rates. Indeed, the ADR in the Luxury & Upper Upscale tier is roughly 3× the Midscale & Economy ADR (on average $316 vs $105) and about 2× the overall market ADR. This yields a huge RevPAR gap: the luxury tier achieved about $238 RevPAR compared to just $83 in the economy tier. In other words, a luxury hotel in the UK currently generates nearly three times the revenue per available room of an economy hotel, despite having slightly lower occupancy – underscoring how rate power and positioning drive revenue differences.

Not only are absolute performance levels different by class, but recent growth trends have diverged as well. Over the last year, higher-end hotels have seen relatively better momentum. In full-year 2024, for example, Luxury/Upper Upscale hotels grew RevPAR by +4.1%, outpacing the market, while the Midscale/Economy segment saw RevPAR decline slightly (-0.4% occupancy, -0.6% ADR). Luxury hotels benefited from affluent travelers returning and a resurgence of group events at high-end venues, whereas the lower-end segments were pinched by their more cost-sensitive customer base (who cut back amid inflation). This pattern has continued into 2025. The premium segment (4-star and 5-star) has managed to hold rates better and even increase volume with group business returning, whereas budget hotels are struggling to grow rates and have seen occupancy pressure from rising competition in the limited-service space. Luxury hotels have thus fared better than economy hotels in the current climate. The squeeze on lower-income consumers (from inflation and wage stagnation) means the customer pool for budget hotels is not expanding, and some travelers “traded up” to midscale options where deals were available. In fact, in London, this effect is pronounced: Economy hotels were hit hardest in recent performance, while some Midscale hotels in London managed to grow occupancy and limit their revenue declines. Industry analysts note this is partly because certain midscale hotels in London are priced similarly to (or just slightly above) economy hotels, so value-conscious travelers opted for midscale properties, boosting their occupancy at the expense of the true budget tier.

Another lens on segment performance is the business mix. Full-service hotels (often in the upper tiers) that cater to group conferences and corporate events are finally seeing a rebound in group bookings. Over the last 12 months, group room nights showed the strongest YoY improvement (after lagging badly in 2020–2022). Group demand is still ~15% below 2019 levels for full-service hotels, but it has grown substantially in the past year, contributing roughly a +7.5% RevPAR uplift in the group segment for those properties. Higher-end hotels, which are more exposed to corporate and MICE group business, are finally capturing that recovery upside. Operators report corporate groups (especially meetings and incentive events) are returning, albeit with shorter booking lead times than pre-pandemic. This has bolstered luxury and upper-upscale performance relative to limited-service hotels that rely purely on transient demand. On the flip side, economy hotels are more dependent on price-driven leisure and SME business – segments that are currently more constrained. Thus, the class-based performance divergence can be summarized: the top end of the market is accelerating (supported by group and premium leisure), while the bottom end is stagnating (hit by consumer belt-tightening). This trend is expected to continue in the near term, especially in urban markets like London where higher-paying travelers (domestic and international) sustain the upper tiers, and lower-tier hotels face rising operating costs that cannot be easily passed on to price-sensitive guests.

Construction and Pipeline Trends

New hotel supply in the UK is growing, but at a considerably slower pace than in previous years – a crucial factor underpinning the market’s stability. The UK hotel market currently comprises about 720,000 rooms, making it the third-largest in Europe, and the room stock grew at a modest ~1% CAGR from 2014 to 2024. This long-term context highlights that supply additions have been fairly constrained even pre-Covid, and now several forces are further damping new development:

• Pipeline Cooling: Hotel construction peaked around 2020 and has since decelerated. As of mid-2025, approximately 17,000 rooms are under construction across the UK – equivalent to only 2.3% of existing supply. This active pipeline is 39% lower than the construction volume at the 2020 peak, illustrating the pullback in development activity. In the last year, only around 5,800 new rooms opened nationally, and although roughly 6,800 rooms were added over a recent period, the pipeline has not been refilling at the same rate. The slower pace is expected to continue, meaning annual new supply growth will likely remain near 1%–2% for the foreseeable future. In effect, supply-side risk is relatively low in the near term – a largely positive story for occupancy levels.

• Development Challenges & Conversions: Rising construction costs and viability constraints are curbing ground-up hotel developments. The construction industry is grappling with inflation in materials and labor. The Building Cost Information Service (BCIS) projects construction costs will rise ~17% over the next five years, with tender prices up 19%. Additionally, higher payroll expenses (e.g. the increased National Living Wage) are adding to development costs. These factors have made many new-build hotel projects financially challenging, leading developers to pursue alternative approaches. Conversion projects (office-to-hotel or retail-to-hotel conversions, as well as property repositionings) have become a key theme in new supply growth. It is often more viable to convert an existing building into a hotel than to build from scratch in this environment. Major operators are leaning into this trend with new “conversion-friendly” lifestyle brands. For instance, Hilton’s acquisition of brands like Graduate Hotels and NoMad, and Hyatt’s acquisition of Dream/Standard, indicate a strategic focus on conversion opportunities in the upscale lifestyle space. Overall, adaptive reuse is expected to drive a substantial share of new room openings in coming years.

• Pipeline Composition by Class: The mix of new developments has shifted upscale. Unlike the past decade (when budget brands led growth), currently higher-end segments – luxury, upper-upscale, and upscale – account for about half of all projects in the pipeline. In fact, hotels at the upper end of the market are leading supply growth relative to their existing base (i.e. their pipeline as a % of current inventory is high). That said, economy and upper-midscale hotels still represent roughly 40% of rooms under construction. Well-known budget and mid-market brands such as Premier Inn (including its hub concept) and Hampton by Hilton continue expansion plans, ensuring that limited-service growth has not ceased. But the pendulum has clearly swung toward more upmarket development, especially in the form of boutique/lifestyle properties. Major chains are capitalizing on consumer demand for experiential stays by building or converting properties in the 4-star segment. For investors, this means new supply is not flooding the economy sector to the same degree; instead, new competition is skewing toward the upscale segment (potentially pressuring ADR at the high end in the long run).

• Geographic Trends: London remains the hottest development market, representing nearly 40% of all rooms under construction in the UK. The capital’s pipeline is substantial, reflecting global investor confidence in London’s long-term demand. Outside London, a few regional markets stand out. Manchester is expected to see one of the largest supply increases in the next 12 months, as several projects come to fruition. Birmingham and Edinburgh have also “bucked the trend” with recent upticks in construction and final planning activity – likely due to specific local developments and efforts to cater to strong leisure/event demand in those cities. Northern Ireland (Belfast region) similarly has a significant pipeline relative to its size, tied to a couple of large projects, and is slated for a noticeable capacity jump in the near term. By contrast, some markets have seen virtually no new development and even net room supply reductions: over the past five years, roughly 5% of the national hotel inventory was temporarily removed from traditional supply as thousands of rooms were contracted by the Home Office to house asylum seekers. This effectively tightened supply in certain areas (for example, many airport and roadside hotels around Heathrow and elsewhere were taken out of public inventory). Now, as those government contracts gradually expire, those rooms are returning to the market, which adds back effective supply in pockets. For markets with a high concentration of such contracts (e.g. around Heathrow), the return of these rooms could put short-term pressure on occupancy and rates. It’s a unique factor to consider in supply-demand calculus for the UK: some regions will experience a one-time supply jolt as formerly block-leased hotels reopen to regular business.

• Development Outlook: Looking ahead, new supply growth is expected to remain modest – likely below historical averages – due to the outlined challenges. Developers and operators still see the UK as an attractive market and are pursuing projects, but largely via creative avenues (conversions, reflagging, etc.) rather than massive new builds. Financing for construction is also tighter in the current interest rate environment, although anticipated rate cuts could ease that. On the cost front, persistent inflation in construction materials and labor will continue to weigh on feasibility. In sum, the pipeline will continue at a slow drip, which supports a favorable supply-demand equilibrium from an owner’s perspective (limited new competition). However, any local surge – such as Manchester’s incoming rooms – could temporarily upset local equilibrium, so market-by-market analysis remains key.

Transaction Volume and Investment Themes

After a subdued period in 2020–2022, the UK hotel investment market came roaring back in 2023–2024. Transaction volumes rebounded strongly in 2024, reaching a five-year high by year-end. This surge was driven primarily by large portfolio transactions. In fact, deals over £200 million made up over 70% of total investment volume in 2024 – a striking statistic that underscores how big-money, institutional players re-entered the sector in force. The year saw several headline-grabbing portfolio sales, including a few on an unprecedented scale. Notably, KKR and Baupost’s acquisition of a portfolio of 33 Marriott-branded hotels for nearly £900 million in late 2024 marked a turning point. This single deal, among others exceeding £800 million, demonstrated renewed confidence in UK hotels by major private equity investors and signaled that large-cap investors view the sector as ripe for strategic plays. These portfolio trades significantly boosted volume metrics and illustrated a willingness to bet on a sector recovery. It’s important to note that many of these buyers were well-capitalized PE firms, which suggests they were bargain-hunting in a relatively illiquid market and could deploy cash despite higher financing costs.

At the same time, smaller transactions did occur but were somewhat constrained by a gap in pricing expectations. There was reportedly a misalignment on pricing for single assets (especially those >£25M), which limited the flow of one-off hotel sales in 2024. Sellers, buoyed by improving trading, weren’t willing to deeply discount, while buyers sought to factor in higher interest rates and risk – resulting in fewer single-asset deals than normal at the high end. Instead, portfolio deals and platform acquisitions dominated as buyers sought scale and sometimes distress-driven opportunities.

For 2025, the investment outlook has improved further, and market sentiment is notably more positive. Easing monetary policy is a big reason: with the Bank of England pausing and expected to cut interest rates over the next 12 months, financing costs should gradually fall. This prospect has lifted optimism and increased liquidity in the hotel investment market. Market participants anticipate that as the bid-ask spread narrows (with yields adjusting and debt becoming cheaper), transaction activity will pick up, particularly in the form of more single-asset deals. In other words, 2024 was the year of the portfolio blockbuster, but 2025 may see a return of the typical one-off hotel sale as the main driver of deal volume – especially if sellers and buyers can agree on pricing amid the changing rate environment. There is also an ongoing investor rotation into alternative real estate sectors that is benefitting hotels; with some traditional property sectors (like offices) facing headwinds, investors are increasingly allocating capital to hotels for diversification and yield.

Key investment themes currently playing out include:

• Value-Add and Repositioning Plays: Investors with available capital are seeking value-add opportunities in the hotel space. A prime example is KKR’s strategy in London – beyond the big portfolio buy, KKR (with operating partner Amante) also acquired the 132-room Park Grand London Kensington in 2024, with plans to renovate and rebrand it under Marriott’s Tribute Portfolio. This kind of deal exemplifies the focus on assets that can be upgraded and repositioned (often improving their environmental and operational performance in the process) to drive higher yields. London, being a global gateway, is a focal point for such value-add investments, as investors bet on the upside from improving an underperforming asset in a prime location.

• Owner-Operators Expansion via M&A: Well-capitalized hotel owner-operators have been actively expandingtheir portfolios by acquiring existing hotels, given the challenges of ground-up development. The high construction cost environment makes buying more attractive than building. For instance, Travelodge (a major UK budget brand) acquired nine existing Hotel Campanile properties (951 rooms total) in 2024. Five of those were freehold purchases and four long leaseholds – indicating a mix of real estate plays – as Travelodge executed a strategy to diversify its property holdings and pursue brand conversion opportunities. In general, many operators are on the lookout for portfolios or single assets that they can convert to their brand or upgrade, as an efficient path to growth. This theme suggests that brand conversion and consolidation will continue to shape deal activity.

• Limited Distress, but Emerging Pockets: Unlike previous downcycles, we have not yet seen a flood of distressed hotel sales – outright distressed transactions have been limited so far. Lenders largely showed forbearance during the pandemic and immediate aftermath, preferring to work with troubled borrowers rather than foreclose. This leniency, combined with the strong trading recovery in 2022–24, meant few hotels were forced to sell at deep discounts. However, pockets of distress are now surfacing. With operating costs climbing and debt service still burdensome, some underperforming assets are coming to market out of necessity. Market observers note a rise in consensual sales – owners under pressure are choosing to sell (often encouraged by lenders) before defaulting. Still, the scale is limited and fire-sale pricing is not widespread. For the most part, buyers are not finding steep discounts; instead, they are targeting hotels that can be acquired at a fair price and then improved operationally. Efficient management and strong fundamentals are key – investors (and lenders financing deals) are focused on hotels with solid operating metrics and cost control. Assets with high expense ratios or needing capex face a thinner pool of bidders. In summary, while we expect more distressed-driven sales in late 2025, they will likely be selective and primarily involve independent or smaller operators who couldn’t weather the cost pressures.

• Capital Markets and Pricing: As interest rates ease, cap rates for hotels should begin to compress slightly after having expanded in 2022–23. Through 2024, market cap rates averaged in the mid-5% to low-6% range (for stabilized assets) based on available data, but there was a wide range depending on asset quality and location. The large portfolio trades implied pricing that investors deemed opportunistic – essentially aggregating multiple hotels at scale often yields a portfolio discount. Going forward, with better alignment between buyer and seller expectations, we anticipate pricing to stabilize. The market pricing trends from Loan Analytics indicate that hotel values (price per room indices) turned a corner in 2024, starting to rise again after falling in 2020–21. In 2025, if trading performance holds and financing gets cheaper, asset values are poised to inch up, which could entice more owners to sell. For now, lenders remain cautious but generally supportive – they are more likely to extend or refinance loans on viable hotels rather than push them to sale, especially if the outlook is improving.

Overall, the investment scene can be characterized as cautiously optimistic. There is ample dry powder targeting UK hotels, but investors are being strategic and selective. The themes of buying existing assets for repositioning, portfolio consolidation by brands, and the hunt for operational efficiencies will dominate in 2025. We expect transaction volumes to improve over 2024’s levels, provided the cost of capital continues to fall and the macro outlook (no recession) holds, enabling more deals to clear at prices both sides find acceptable.

Supply-Demand Equilibrium and Forward Outlook

The interplay of recovering demand and constrained supply has brought the UK hotel market to a relatively healthy equilibrium in mid-2025. Barring unforeseen shocks, the next 12–18 months should see a continuation of balanced conditions, with steady if unspectacular performance – a scenario generally favorable for lenders and owners. Key elements of the forward outlook include:

• Occupancy and Demand: With international tourism improving and domestic travel holding firm, room-night demand is expected to grow modestly in the coming year. VisitBritain’s projection of +5% inbound visits is a positive indicator. Business travel is the wildcard – it’s not expected to surge, but even a gradual return of corporate demand (as companies adjust to post-Covid travel norms) will help urban markets. On the whole, industry analysts foresee stable to slightly rising occupancy levels in 2025, especially since new supply will not outstrip demand. The supply-side story is largely positive: as noted, limited new openings mean existing hotels can maintain high occupancy if they remain competitive. Loan Analytics’ forecast calls for average occupancy around 78% in the near term (essentially unchanged from current levels). In other words, the market should remain tightly balanced, and any demand uptick (e.g. a strong summer travel season) could quickly translate into higher occupancy or pricing power given the lack of new room glut. One caveat: certain locales with a surge of new rooms (like Manchester or Belfast) may experience a short-term dip in occupancy until the new supply is absorbed. But nationally, no oversupply is on the horizon – a very different picture from some past cycles.

• ADR and Pricing Power: Room rates are likely to see modest growth in 2025, in the low single digits (roughly tracking general inflation). The ability to push ADR will depend on the demand mix. Leisure-heavy markets should get a boost from peak season tourists and events (though a lighter events calendar caps some upside, as discussed). Corporate-negotiated rates and group rates will be a drag if businesses continue to limit travel spending. For now, expect ADR to rise perhaps ~1–3% over the next year – meaning essentially flat real ADR after inflation. Upscale hotels in particular will be tested on rate, as more new upscale/lifestyle supply comes online, introducing competition. The Loan Analytics forecast has ADR averaging ~$173 in the near-term (vs ~$167 now), about +1.6%, which aligns with this modest growth outlook. Importantly, hoteliers have shown pricing discipline and creativity (using promotions, packages, etc.) to drive occupancy without massive discounting – we anticipate this yield management agility to continue, keeping ADR relatively steady even if there’s any softening in demand.

• RevPAR and Profitability: Combining the occupancy and ADR expectations, RevPAR is projected to be roughly flat (0% to +2%) for full-year 2025, indicating a stabilizing market. After the huge gains of the past two years, a plateau is not unwelcome – it suggests the market has fully recovered and entered a normal cycle. However, hotel operators will face margin pressures even with flat-to-positive RevPAR. On the cost side, 2024–2025 brought substantial increases in wages and utilities that are eroding profit margins. The UK raised the National Living Wage, and employers’ National Insurance contributions have risen, directly inflating labor costs for hotels. Energy and food costs also remain high. Thus, even as top-line revenues stabilize, profit per room is under strain. In 2024, gross operating profits improved as revenues grew, but in 2025 many operators report that cost growth is outpacing revenue growth, squeezing EBITDA margins. Additionally, a government relief on business rates that greatly helped hospitality in 2024 (a 75% rates discount) has been scaled back to a 40% discount for 2025, up to a cap. This means smaller independent hotels, in particular, will see a higher property tax burden this year, directly hitting the bottom line. The good news is that policy support is on the way: the government has drafted legislation to permanently cut business rates for hospitality properties from 2026 onward. If enacted, this would materially reduce occupancy costs for hotels in the long term, boosting net operating income. But in the interim (2025), owners must navigate a challenging profit environment. Lenders will be watching debt service coverage closely – maintaining profitability is the next big hurdle now that occupancy has recovered. Efficiency and cost control will be paramount; hotels that can leverage technology and staffing innovations to mitigate wage pressures will outperform.

• Market Risks and Opportunities: On the risk side, much hinges on the macro economy and geopolitical climate. A sharper economic slowdown (or a consumer retrenchment due to another cost-of-living spike) could stall hotel demand growth. Additionally, any hit to inbound travel – for instance from geopolitical events or unfavorable currency shifts – would be felt in major markets. So far, the pound’s relative stability and the appeal of UK as a destination have kept inbound tourism on track, but hoteliers are mindful of external shocks. On the opportunity side, the robust events schedule returning in 2026 (when some cities host major tournaments and conventions deferred from earlier years) could provide a new uplift. Furthermore, the potential easing of travel frictions (e.g., improved UK-EU travel relations or bilateral tourism initiatives) might expand the traveler pool. For investors, the current equilibrium offers a window to execute improvements and repositionings so that assets are ready to capture the next upcycle. The fact that supply growth is minimal for the next 2–3 years means any incremental demand will primarily benefit existing hotels – a strong argument for investment in renovations and service upgrades now, in order to grab market share.

• Forward-looking Metrics: Industry forecasts (from sources like Oxford Economics and STR) generally show UK RevPAR growing at 1–2% annually in 2025 and 2026, after the tiny dip anticipated this year. Occupancy is forecast to hold around 78–79%, essentially at capacity for many markets on peak nights (there will always be some structural vacancy). ADR growth might accelerate slightly if inflation abates and consumer confidence improves, enabling rate increases. The Leisure and Hospitality sector employment is also expected to grow ~1.3% annually over the next five years, which suggests a steady expansion of service capacity (and may help alleviate some staffing shortages that plagued the industry in 2021–22). For lenders and underwriters, the forward outlook indicates relatively stable cash flows, with DSCRs improving gradually as interest costs potentially fall. Under a base case, we do not project a spike in loan delinquencies – most hotel loans underwritten in the last two years anticipated this moderate scenario. However, loans that assumed a continuation of rapid RevPAR growth will need adjustment; refinancing activity may pick up as borrowers look to extend terms until more favorable rate conditions in late 2025–2026.

In summary, the UK hospitality market at mid-2025 is on solid footing, having recovered occupancy to pre-pandemic norms and achieved a new equilibrium. Demand growth across 2024–2025 is steady but unspectacular, with strength in leisure and inbound travel offset by corporate softness. Crucially, limited new supply acts as a tailwind, keeping occupancy levels buoyant and easing competitive pressure. For investors and developers, the focus has shifted to operational efficiencies and strategic acquisitions rather than new builds, given the pipeline constraints and cost environment. And for all stakeholders – owners, lenders, operators – the key themes going forward will be resilience and disciplined growth: leveraging the positive supply-demand balance while carefully managing costs and debts in a time of economic caution. The outlook is broadly positive, with moderate revenue gains likely and structural support (like the 2026 business rates cut) on the horizon. Assuming no major disruptions, the UK hotel sector is set to build on its post-pandemic recovery, offering a stable platform for investment and development in the years ahead.