A recent report from Deloitte reveals that optimism regarding the long-term prospects of the UK hotel market remains high, despite a slight dip in confidence compared to the previous year.

The survey found that 72% of respondents express a positive outlook for the industry, with 59% anticipating significant investment growth over the next five years.

However, these figures are lower than last year's expectations, where 64% expected growth and improved profitability in the sector.

Performance expectations for 2025

When examining key performance indicators, the report indicates that a majority of industry executives foresee a modest increase in Revenue Per Available Room (RevPAR) in 2025.

Specifically, 81% of respondents expect growth of between 1% and 5% in London, while 70% anticipate a similar increase in the wider UK regions.

This marks a decline in growth expectations for both areas, likely attributed to ongoing economic uncertainties, which have led to a more cautious approach to recovery.

Moreover, expectations for Gross Operating Profit per Available Room (GOPPAR) are also subdued, with 65% of London respondents and 56% from the UK regions expecting a growth of 1% to 5%.

Although these expectations are lower than the previous year, they reflect greater consistency across the board, as the previous year's results showed a wider range of anticipated outcomes.

Regional investment trends

Edinburgh continues to lead as the most attractive city for hotel investment for the fourth consecutive year, followed by Oxford in second place. Manchester has moved up to third, while other cities such as Cambridge, Bristol, Cardiff, and York have dropped in the rankings.

In terms of asset classes, hotels remain the top choice for investors in 2025, followed by student housing. There is a notable increase in interest in co-living spaces, which have more than doubled in appeal since 2024.

Among hotel segments, 'upper upscale' and 'luxury' categories are favoured, indicating a shift towards premium experiences, while economy hotels also maintain interest from investors.

Financing landscape

Private equity continues to be the dominant source of equity capital for UK hotel acquisitions, showing a recovery with a ten-percentage point increase from last year.

This suggests an anticipated rise in mergers and acquisitions within the sector. Aside from domestic investors, significant capital is flowing into the UK hotel market from North America, Europe, and the MENA region.

However, a slowdown in economic activity across EMEA and China has resulted in a decline in their prominence as sources of finance.

The findings from Deloitte highlight a nuanced landscape for the UK hotel market, characterised by cautious optimism amid economic challenges, varied regional investment prospects, and a changing financing environment.