Hotel demand ‘holds strong’ while staff costs eat into profit

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Retail Reporter

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Occupancy of hotels has risen but higher staff costs mean profitability has fallen
Higher costs meant hotel profits fell in October

Demand for UK hotels rose in August, although higher staff costs means that hoteliers saw profit drop.

Occupancy increased from 81.4 per cent to 82.1 per cent in August year-on-year, and rose slightly from 84.2 per cent to 84.5 per cent in London, according to RSM and Hotstats.

But room rates remained flat as consumers continued to struggle with a cost of living crisis – the average UK adult has seen monthly income drop by £224 year on year.

This, along with higher staff costs due to tax increases, meant gross operating profits of UK hotels fell from 38.1 per cent to 37.5 per cent in August year-on-year and from 41.2 per cent to 39.9 per cent in London.

“August was a mixed month for the UK hotel sector,” Chris Tate, partner and head of hotels at RSM UK, said.

“The good news is that hotels were able to enjoy a good summer, which for some, will have been key to help see them through the quieter months to come,” Tate added.

Hospitality sales also rose 0.6 per cent in August, something which should “help the economy to recover” after stagnating in July, Thomas Pugh, economist at RSM, said.

“Admittedly, the outlook further ahead looks more challenging… The big question, though, is how much speculation about tax rises in the budget will undermine consumer confidence and prevent consumers from spending,” he added.

Despite consumer concerns, however, investors are looking more confident in the market.

UK hotel investment is estimated to reach £1.04bn in the third quarter of 2025, a 28 per cent year-on-year increase, with buyers particularly interested in London hotels, according to Savills.

Savills attributed this surge to growing confidence in the UK market and a strategic push to expand platforms.

David Kellet, head of hotel Capital Markets EMEA at Savills, said: “While the first half of the year was defined by operational and investor uncertainty in the UK hotel market, sentiment has stabilised through the third quarter… We look forward to what’s ahead for the UK hotel market.”