Drab end to the year for hoteliers as profit margins come under pressure
Despite occupancy and room rates of UK hotels holding up in December, the squeeze on operating profits marked a drab end to the Christmas season for hoteliers, according to RSM UK.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows occupancy of UK hotels increased from 72.5% to 73.6% in December year-on-year, but fell from 82% to 81.4% in London.
Average daily rates (ADR) of occupied rooms in UK were up slightly from £166.35 to £169.33 in December year-on-year and rose from £239.66 to £246.23 in London. Revenue per available room (RevPAR) was also up from £120.57 to £124.56 in the UK and from £196.50 to £200.45 in London.
However, gross operating profits in December were down year-on-year in the UK from 35.8% to 35.4%, with London seeing an even bigger drop from 43.3% to 41.8%.
Chris Tate, partner and head of hotels at RSM UK, said: “While hoteliers benefitted from a festive boost in November, this trailed off in December particularly for London hotels. The wider UK market had slightly better fortunes than London, but the challenge remains across the board – cost pressures are outweighing demand and higher room rates, with profits being squeezed as a result.
“For much of 2025, hotels were able to weather the storm of increased costs better than other consumer industries, as demand has remained strong. But December’s results are a stark reminder that hotels can’t rely solely on occupancy and room rates, they must look at ways to reduce their costs. Room rates can only be increased so much before they start to put consumers off, with RSM’s Consumer Outlook highlighting consumers remain cautious, as nearly 60% plan to save more or at their current rate in the coming quarter. It’s also likely room rates have reached or are close to their upper limit.
“It was particularly disappointing to see the hotel industry excluded from the government’s latest support package which lowers business rates for pubs and music venues. The system remains outdated, and making small tweaks won’t solve the issue of disproportionately high business rates bills – what’s needed is a complete overhaul. Hotels are crucial to UK economic growth, as closures will not only impact inbound tourism to a city but would also hit local employment.”
Thomas Pugh, chief economist at RSM UK, added: “The RSM Hotels Tracker matches the signal from the broader economy that despite reasonable growth of around 1.4% last year, elevated inflation continues to put pressure on margins.
“More positively, we expect the economy to start the year off strongly, growing by 0.5% q/q. Indeed, the services PMI jumped to its highest level in nearly two years, and consumer confidence also rose to -16, the highest since August 2024.
“Further ahead, inflation will fall back sharply in April to just a little above 2.0%, which should relieve some of the pressure on hoteliers’ margins despite another above inflation increase in the National Living Wage. What’s more, lower inflation, a stabilising labour market and another cut to the bank rate should keep the recovery in consumer confidence in train despite slowing real household income growth.”