The UK hotel sector staged a strong recovery in the second half of 2025 after a challenging start to the year, 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). However, performance strengthened considerably in the latter half of the year, with stronger seasonal demand.
Revenue per available room (RevPAR) finished broadly in line with 2024 levels across London and regional UK markets, and Knight Frank forecasts modest but stable RevPAR growth of 1.9% in London and 1.8% in regional UK markets in 2026.
Trading performance varied across hotel segments, but with the strongest uplift in performance coming from two opposite sides 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 markets the hotel sector benefited from a far stronger second half, outperforming the same period last year. In H2, occupancy increased by 1.2 percentage points to 79% and ADR increased by 2.2%, driving RevPAR growth of 3.8%.
“Despite a challenging operating environment, a strong rebound in the second half of the year helped to offset losses incurred in the first half,” said Philippa Goldstein, senior surveyor and 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.”
She added: “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.”
Henry Jackson, partner and head of hotel agency at Knight Frank, said 2026 had started with “real momentum”. Major deals so far this year have included PPHE’s repurchase of Park Plaza London Waterloo for £147.9m, Evolution Investment Fund’s acquisition of two central London luxury hotel developments and SanRaj’s three-hotel portfolio deal to expand its presence in the UK.
“Encouragingly, we have a strong pipeline, with approximately £100m of assets confirmed to launch within the next two months, providing further depth to the market,” he added.
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