The UK hotel sector delivered a resilient performance in 2025, staging a strong recovery in the second half of the year after a challenging start, according to Knight Frank’s latest UK Hotel Trading Performance Review.
The first six months of 2025 were marked by rising operating costs and softening average daily rates (ADR), which weighed on profitability across much of the market. However, performance strengthened considerably in the latter half of the year, with stronger seasonal demand, enabling Revenue per Available Room (RevPAR) to finish broadly in line with – or ahead of – 2024 levels across London and Regional UK. The rebound has provided renewed confidence across the sector, with Knight Frank forecasting modest but stable RevPAR growth of 1.9% in London and 1.8% in regional UK markets in 2026.
London achieved an average occupancy of 82.5%, an uplift of 1.2 percentage points versus the previous year, with sustained occupancy growth achieved from March through to November. The ADR proved more challenging from the outset, declining by 2.5% year‑on‑year over the first six months, but posted a far strong recovery in the second half, with 2% growth over this period, offsetting first‑half declines and resulting in full‑year ADR ending broadly in line with 2024.
Trading performance varied across hotel segments, but with the strongest uplift in performance coming from two opposite poles of the spectrum. London’s select service and luxury hotels both posted an uplift in Total Revenue (TRevPAR) of 1.9% and 2.0% respectively.
Meanwhile, across regional UK, notwithstanding a challenging operating backdrop – which saw H1 RevPAR decline by 0.4% – the regional hotel market benefited from a far stronger second half, outperforming the same period last year. In H2, occupancy increased by 1.2 percentage points to 79%, ADR increased by 2.2%, driving RevPAR growth of 3.8%. Regional UK thus closed the year with a 1.9% rise in RevPAR to £79, supported by balanced contributions from both rate and occupancy.
A defining theme of 2025 was the steadfast strength of ancillary revenue streams, excluding F&B. Knight Frank’s research shows that leisure revenues rose by an average of 6.0% per occupied room across all UK hotels with a leisure offering, as consumers prioritised health and wellbeing. Hotel leisure clubs in particular benefitted from sustained multi-generational demand, reinforcing the growing importance of wellness-led amenities to overall performance.
The report also highlighted that rising cost pressures – driven primarily by above‑inflation wage growth – created a challenging operating environment. All operating departments and cost centres experienced significant strain, with payroll expenses accounting for 75% of the total increase in operating costs in 2025. The data further indicates that payroll costs are now approximately 30% higher per available room than in 2019.
According to Knight Frank, many hoteliers will be looking to sustain the positive trading momentum that underpinned the strong finish to 2025, with cautious optimism that 2026 will deliver further revenue gains. However, the report warns that renewed cost pressures from April – including higher business rates and increased staffing costs ahead of the phased introduction of the Employment Rights Bill – will present fresh challenges. These factors are expected to weigh on profitability and temper the pace of expansion over the coming year.
Despite a challenging operating environment, a strong rebound in the second half of the year helped to offset losses incurred in the first half. Most segments ended 2025 at or near the profitability levels achieved the previous year, with the strongest results delivered by hotels with a well-balanced segmentation mix—particularly those with strong leisure and wellness offerings.
Looking ahead, the primary challenge will be protecting net operating profit, as rising business rates and staffing costs are expected to put renewed pressure on margins in 2026. Strengthening top-line performance will therefore be even more critical amid an increasingly challenging environment for maintaining current profit levels.
Philippa Goldstein, Senior Surveyor and Head of Hotel Research at Knight Frank
2026 has started with real momentum, with several transactions already completed by our team and investor engagement building steadily. Encouragingly, we have a strong pipeline, with approximately £100 million of assets confirmed to launch within the next two months, providing further depth to the market.
Single-asset opportunities are expected to remain the dominant driver of activity, attracting a broad and competitive mix of domestic and overseas capital. Demand is deeper than many might anticipate, and with improving sentiment and sustained appetite for well-positioned assets, we are confident that 2026 will be a positive and active year for the UK hotel investment market.
Henry Jackson, Partner and Head of Hotel Agency at Knight Frank