National Hotels

The UK hotel sector has demonstrated resilient trading performance throughout 2026 despite ongoing macroeconomic uncertainty, elevated operating costs and continued geopolitical tensions. Whilst consumer and business confidence remain relatively subdued, overall travel demand has remained robust, supporting hotel performance across much of the market. UK occupancy currently stands at 77.6%, with an average daily rate (“ADR”) of £125 and RevPAR of £97 on a rolling 12-month basis. RevPAR growth has improved to approximately 2.3% over the year, supported by modest gains in both occupancy and room rates.

Operators continue to face pressure from rising labour costs, National Insurance contributions, business rates, energy costs and wider inflationary pressures. Employment costs are expected to remain a particular challenge as businesses respond to the Employment Rights Bill, including a move away from zero-hours contracts towards more permanent roles and guaranteed working hours. As a result, the focus across the sector has increasingly shifted towards operational efficiency, cost control and active asset management to protect profitability. Whilst revenue growth has returned, it remains at relatively modest levels by historical standards, reinforcing the importance of operational performance and disciplined capital expenditure. Industry participants continue to report generally positive trading conditions despite wider economic uncertainty, supported by resilient leisure and business travel demand.

Performance trends are becoming increasingly selective by market and asset type. Regional destinations have generally outperformed London during 2026, benefiting from strong event-driven demand, domestic leisure travel and constrained new supply. Regional hotels with a strong leisure offer have typically recorded the greatest uplift in trading performance, particularly those focused on distinctive experiences, wellness and holistic wellbeing. Cities such as Glasgow, Cardiff and Edinburgh have reported some of the strongest revenue growth, whilst London performance has remained comparatively stable following softer long-haul travel demand and the temporary effects of geopolitical uncertainty. Luxury and upper-upscale hotels continue to record the strongest operating performance, with occupancy of 75.9%, ADR of £236 and RevPAR of £179, compared with occupancy of 78.3%, ADR of £78 and RevPAR of £61 for economy and midscale hotels. Nevertheless, the economy and midscale segment has shown encouraging signs of recovery during recent months. More broadly, the strongest growth is increasingly concentrated in markets exhibiting robust demand fundamentals, limited new supply and strong barriers to entry.

Investor sentiment remains positive and hotel transaction volumes are currently tracking ahead of both 2025 levels and the long-term average. Improved financing conditions, greater pricing alignment between buyers and sellers and continued international investor demand have supported market activity. Foreign capital has accounted for over 60% of transaction volumes during the past year and London remains the principal focus for investment activity, benefiting from its position as one of Europe’s deepest and most liquid hotel markets. International capital, owner-operators, private equity investors and new market entrants have all remained active acquirers throughout the current cycle. Recent transactions include the sale of the 272-bedroom Leonardo Hotel London Aldgate (formerly Hotel Saint) to Fattal Hotel Group for approximately £124 million (£456,000 per room) and the sale of the 127-bedroom Radisson Blu Leicester Square to a Spanish family office for approximately £121 million (£953,000 per room), demonstrating continued investor appetite for prime, well-located hotel assets. The market has also witnessed continued portfolio expansion by established hotel operators and investors, alongside new international entrants seeking exposure to the UK hospitality sector. More broadly, London generated approximately £1.4 billion of hotel investment activity during the first half of 2026 and continues to attract a diverse range of domestic and international capital. Several significant portfolio transactions currently being marketed, including the Malmaison & Hotel du Vin portfolio and Marriott MOXY portfolio, are expected to support activity through the remainder of the year. Regional markets also continue to attract investor demand, underpinned by resilient operational performance and favourable long-term fundamentals.

On the supply side, development activity remains constrained by viability challenges, elevated construction costs and planning delays, although the development pipeline has strengthened. Approximately 20,000 rooms are currently under construction across the UK, representing around 2.8% of existing inventory and an increase of approximately 35% since the end of 2024. Development activity continues to be supported by office-to-hotel and retail-to-hotel conversion opportunities, particularly within larger urban centres including London, Edinburgh and Manchester. London accounts for approximately 45% of rooms currently under construction, although overall supply growth remains relatively modest by historical standards and is expected to remain supportive of operating performance over the medium term.

“Investor sentiment remains positive and hotel transaction volumes are currently tracking ahead of both 2025 levels and the long-term average”

Overall, the UK hotel sector continues to benefit from resilient trading fundamentals, constrained supply growth and improving investment market liquidity. Whilst transaction activity and operator sentiment remain broadly positive, the market is becoming increasingly selective, with performance and investor interest concentrating on locations offering strong demand fundamentals, limited supply risk and opportunities for operational enhancement. Ongoing cost inflation, economic uncertainty and wider geopolitical risks continue to create challenges, whilst evolving government policy, including business rates reform and proposals for local accommodation taxes in certain destinations, may influence operating performance over the medium term. Nevertheless, continued transactional evidence across both London and regional markets suggests that the sector remains comparatively well positioned relative to a number of other commercial real estate asset classes.

Shaun Skidmore

Operational Real Estate Consultant

Commercial Valuation

+44(0)7908 530 441