Single asset transactions driving UK hotel market

While overall hotel investment in the UK is down by 28.6% year-on-year, this is mainly due to fewer large portfolio deals, according to Savills UK Hotel Market 2025.

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Single-asset transactions, however, have surged, indicating strong and resilient investor interest, particularly in London and various regional markets. Savills anticipates a healthier transaction volume by 2026, driven by continued single-asset activity and a return to more portfolio deals, supported by the UK's diverse buyer pool.
The first half of 2025 saw a slight dip in revenue per available room (RevPAR) due to increased supply impacting occupancy. However, July and August showed initial signs of recovery, suggesting a slow build-up of momentum in the latter half of the year. Savills expects modest single-digit growth in RevPAR for both London and regional UK, primarily fueled by average daily rates (ADRs). The UK's strong domestic demand and other demand drivers are expected to maintain its position as one of Europe's top hotel markets.
Gross operating profit per available room (GOPPAR) is down 4.2% year-to-date, largely because of a 4.1% increase in labour costs. Despite a slight reduction in other operating expenses, profit margins have fallen to 34.5% nationwide. Technology adoption is seen as crucial for hoteliers to manage these ongoing high-cost challenges.
The marginal decline in overall RevPAR is mainly due to new hotel supply (up 1.1%) outpacing a slight increase in demand (up 0.6%). With construction costs high, future supply growth is expected to remain flat, which should help future demand gains. ADRs have stabilized, reflecting price stickiness and broader economic headwinds. 
The UK's hotel market remains robust globally, ranking second in Europe for occupancy (76.1% YTD), outperforming major economies like France, Germany, Italy, and Spain. This highlights its ability to attract and retain demand.
London's RevPAR declined by 2.0% due to a drop in ADR (influenced by a weaker dollar and increased supply), though initial Q3 data shows some improvement. Regional UK, however, saw a modest RevPAR increase of 0.3%, driven by ADR growth, with cities like Cardiff and Liverpool showing strong performance from major events.
Segment-wise, luxury hotels are the sole category experiencing RevPAR growth (up 2.8%), driven by the resilience of high-income consumers. Economy hotels have faced the steepest decline, with falling occupancy and limited ability to raise rates, particularly in London, where "compression nights" (over 90% occupancy) have significantly decreased.
Q3 2025 saw a 23.8% increase in UK hotel investment, largely driven by single-asset transactions, especially in London. Domestic owner-operators are leading acquisitions, showing strong confidence in the UK market, with international asset managers also re-entering for value-add opportunities. Regional markets like Scotland, the South West, and West Midlands have seen dramatic increases in investment activity, broadening investor interest beyond traditional core markets.
Despite improved sentiment in Q3, challenges like business rates (with a revaluation expected in 2026) remain. Year-end volumes are forecast to be below the ten-year average, but the surge in single-asset transactions, particularly in key regions, suggests a positive outlook for investor sentiment and market resilience heading into 2026.