Hotels across the UK delivered a resilient trading performance through 2025, though the year was one of a weaker first half, followed by a recovery in the second half of the year.
The hope is that the momentum gained in autumn and winter 2025 will be carried through into early 2026 performance, and agent Knight Frank reports cautious optimism that further revenue gains will be captured. However, just as the sector in the UK faced strong headwinds from staff cost increases during 2025, so it faces the follow through of further operating cost pressures into Q2 of 2026, forced by changes in the Employment Rights Bill, and local business tax increases.
2025 Was a Year of Two Halves
According to metrics presented by Knight Frank in the company’s UK Hotel Trading Performance Review, the first six months of 2025 saw softening demand leading to lower average room rates, while operating costs also rose. However, seasonal demand improved into the autumn, allowing a positive finish to the year.
In the UK capital, hotels achieved an average occupancy of 82.5%, up 1.2% on the figure reported in 2024. Room rates slipped 2.5% in the first half of the year, but recovered by a similar amount during the second half.
In the regions, the first half fall-off was less marked, while the second half was stronger. H2 occupancy improved by 1.2% to 79%, while hoteliers held firm and pushed up average daily rate by 2.2%.
“A strong rebound in the second half of the year helped to offset losses incurred in the first half,” commented Philippa Goldstein, head of hotel research at Knight Frank. “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.”
The Knight Frank report measured that leisure revenue contribution rising by 6% per occupied room during the year. Health and wellbeing remain front of consumer mindsets, so properties offering health clubs and spas continued to do well from offering a wellness upsell to incoming guests.
Deals Grow Along with Confidence
Investors are taking heart from the sector’s ability to ride out tougher times. Knight Frank says it has a pipeline of around GBP100 million of UK hotel assets coming to the market through the first half. Knight Frank head of hotel agency, Henry Jackson, is expecting interest from both UK and international buyers. “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.”
New supply impacts room rates in any market, and in London there are a number of new hotels launching during the first half of 2026, likely to impact rates in the short term. These include the Zetter Bloomsbury, and the new St Regis London, being created through a comprehensive refurbishment of the former Westbury Hotel in the Mayfair district. There are also refurbishments taking place at the Leonard Hotel, The Landmark and the Dilly, as owners and operators look to stay relevant in a changing market.
