Single assets driving the transaction market
Key points
Single assets driving the transaction market
UK hotel investment volumes totalled £3.01 billion year-to-date (YTD), down -28.6% year-on-year (YoY) due to fewer portfolio deals. However, single-asset transactions have surged, up 33.1% YoY and 38.3% above the ten-year average, with strong activity in London and several regional markets, signalling resilient investor appetite.
Savills expects to see an improving transaction volume going into 2026, with continued solid single-asset activity coupled with greater portfolio volumes. The UK’s historically diverse buyer pool will always be beneficial, and the knowledge that a liquid exit is feasible, along with momentum in the market, will all play their part.
Operational uncertainty in focus
While RevPAR declined marginally YTD due to supply-led occupancy pressure, July and August showed small signs of recovery, with RevPAR growth – suggesting momentum is slowly building in H2.
Savills expects continued growth in top-line performance, albeit in low single digits for both London and regional UK, driven mainly by average daily rates (ADRs). The UK’s improving domestic demand base, along with its wealth of other demand drivers, will ensure that it remains amongst the strongest European hotel markets in absolute terms.
Labour costs impacting profitability
GOPPAR (gross operating profit per available room) is down 4.2% YTD, driven by a 4.1% increase in labour costs due to wage inflation, National Insurance contributions (NIC) changes, and hiring challenges. While operating expenses have edged down, profit margins have still fallen to 34.5% nationwide, which is a 3.6% decline, showcasing that hoteliers have done a good job in offsetting some of the increased labour costs.
Going forward, costs will remain a challenge, with labour front and centre, whilst business rates for some hotels will also prove tricky. The use of technology will remain pivotal for hoteliers to successfully adapt to the current high-cost environment.
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Ruby Stella, London
Outlook
The UK hotel industry appears to have reached a nadir in terms of operational performance. While 2024 proved itself to be a strong year from a top-line perspective, 2025 has presented a more challenging narrative.
Economic headwinds have taken their toll on consumer confidence worldwide, yet despite this, we can still look to pockets of positivity which signal the market could be at a turning point. July YTD, there has been a marginal decline in overall UK RevPAR, a result of occupancy declining by -0.5%, according to CoStar. Despite the decline in occupancy, the underlying dynamics tell a more nuanced story, and the fall in occupancy is actually a result of changes to the supply/demand equilibrium.
UK hotel room supply has grown by 1.1% YTD, remaining broadly in line with the long-term annual average of 0.9% (ten-year CAGR from 2014 to 2024). From a demand side, we are continuing to see a prioritisation of travel for consumers worldwide as, despite macroeconomic and geopolitical headwinds, demand for UK hotel rooms (rooms sold) increased 0.6% YoY.
This slight imbalance between supply and demand is the reason for the fall in occupancy and the subsequent fall in RevPAR. With construction costs set to remain elevated, the pipeline of new rooms, those under construction or in final planning, is less than pre-pandemic levels. As a result, supply growth is expected to remain relatively flat in the coming years, reducing the risk of new supply offsetting future demand gains.
ADRs, which saw substantial growth in the immediate post-pandemic period, have largely stabilised since 2023, recording a modest YTD YoY increase of just 0.1% for the UK as a whole as of July.
This again reflects a degree of price stickiness, supply outstripping demand, and broader macroeconomic headwinds, which have limited operators’ ability to drive rates in the same way as during the initial recovery phase.
Despite the mixed start to the year, the sector’s operational performance appears to be showing signs of improvement as we enter the second half of the year. RevPAR rose by 3.7% in July, with August data showing a further 1.0% increase, indicating sustained momentum over the summer. This growth was again driven by gains in ADR.
Notably, there are encouraging signs within the domestic tourism market, which has been gaining momentum over the summer, supported by a busy events calendar that helped drive leisure demand during a period typically quieter for corporate travel.
Global performance
Benchmarking the UK against international markets, the YTD occupancy rate of 76.1%, despite a slight decline YoY, continues to demonstrate the underlying strength of the UK hotel industry.
The UK ranks second in Europe, just behind Ireland (77.2%), and ahead of other major economies including France (64.2%), Germany (65.5%), Italy (69.1%), and Spain (74.5%).
The European average occupancy for July YTD stood at 69.1%, 70 basis points (bps) below that of the UK. This occupancy premium is significant, as it highlights the UK’s continued ability to attract and retain demand in a competitive international landscape and reinforces its position as one of Europe’s most resilient and high-performing hotel markets.
Bifurcation: Both in region and segment
As of July 2025, London recorded a -2.0% YoY decline in RevPAR, driven entirely by a drop in ADR, while occupancy remained flat. A market with significant US demand, the depreciation of the dollar has limited hoteliers’ ability to drive rates, and a 2.0% increase in supply has further intensified competition, making trading conditions more challenging in the capital.
Once again, initial Q3 data is looking more encouraging: RevPAR grew by 3.0% in July; however, the same metric dropped back by -2.7% in August.
Regional UK has fared better so far in 2025, seeing a modest RevPAR increase of 0.3% YoY. This growth was driven by a 1.1% rise in ADR, while occupancy declined by -0.7%; however, this drop in occupancy was again supply-led. Key growth markets for RevPAR included Cardiff and Liverpool, where RevPAR has grown 6.9% and 4.3%, respectively.
Both cities have recently hosted a number of major events, helping to drive performance, mostly boosted by ADR. Overall, the trend that we are seeing in key cities points to smaller, leisure-focused markets driving the growth we see in the regions.
Dissecting the market by segment reveals a clear divergence in performance: luxury is the only class to see RevPAR growth July YTD, up 2.8%, while the economy segment has experienced the steepest decline at -2.3%.
Luxury hotels alone are preventing a decline in nationwide ADRs, driven by the significant rate premium they command over other classes.
This is underpinned by the resilience of high-income consumers, who remain less price sensitive even amid weakening consumer confidence. Whilst economy hotels have seen a minimal decline in ADR of -0.2% YoY YTD, the segment has also seen demand decline by -1.7% YTD YoY.
Challenges for economy hotels are especially evident in London, where July YTD demand is flat (+0.1%) but occupancy has dropped 2.5% due to rising supply, pushing ADR down 3%. Compression nights in London’s economy segment, when occupancy exceeds 90%, have dropped sharply from 59 in 2019 to just 18 in 2025, underscoring the growing challenge for economy hotels in driving rate growth. This pressure is being compounded by weakening consumer confidence and broader macroeconomic uncertainty.
Balancing the bottom line
HotStats data reveals that July YTD, across the UK, total revenue per available room (TRevPAR) is down -0.6%, and GOPPAR is down -4.2%.
Labour costs have increased by 4.1%, driven by a combination of factors. The rise reflects a 6.7% uplift in the National Living Wage for 2025, alongside higher NICs, exacerbated by a lower payment threshold. These pressures have contributed to a sharp escalation in overall employment costs. Additionally, post-Brexit migration shifts and hybrid working arrangements have also made hiring more challenging, forcing hoteliers to offer higher wages to attract staff.
Operating expenses across UK hotels have edged down by -0.8%, helping to cushion the impact on the bottom line. However, profit margins have still taken a notable hit, falling to 34.5% nationwide, driven primarily by rising labour costs.
An encouraging trend is emerging in ancillary revenue streams. July YTD data shows that golf and wellness revenues per sold room are up by +12% and +10%, respectively, suggesting that health-focused leisure remains in strong demand. Hotels offering these amenities continue to drive meaningful revenue from them.
W Hotel, Edinburgh.
Savills advised APG & Nuveen on the largest single-asset hotel deal ever recorded in the Edinburgh market.
Domestic tourism rebound
Cardiff – live & learn
One of the UK hotel industry's enduring strengths is its ability to capitalise on the country's vibrant events calendar. From cultural and sporting occasions to corporate and music festivals, the UK remains a leading destination for large-scale events in Europe. Hotel availability plays a pivotal role in venue selection decisions, and UK hotels remain well-positioned to capture this ongoing demand.
While 2024 was undeniably the year of Taylor Swift, 2025 belongs to Oasis. The impact on hotel performance has been significant across all host cities, with the exception of London, where the sheer volume of supply and the capital’s global appeal dilute the effect of any single event.
Cardiff offers a compelling case study in event-driven hotel performance. When Taylor Swift performed on 18 June 2024, occupancy in the Welsh capital reached 96.0% and ADR hit £262, a 35.9% YoY increase. Fast forward ten months to Oasis’s first Cardiff show, and while occupancy was slightly lower at 92.5%, ADR surged to £340, showing strong demand despite higher rates.
This pricing power is partly due to Cardiff’s relatively small market size – around 6,000 rooms – but also notable given the limited upscale inventory. With no luxury rooms and just 1,077 upper upscale rooms (per STR classification), the ADR achieved is particularly impressive.
Two tales of the city: regional cities rise as traveller demographics shift
Despite relatively strong headline hotel performance in 2024, Great British Tourism Survey (GBTS) data reveals that domestic tourism demand softened in the same period, with full-year trips down -10.4% YoY.
However, signs of recovery in the domestic tourism market have emerged in the first half of 2025, as trips rose by 16.3% compared to the same period in 2024, suggesting the domestic tourism market may be turning a corner. Additionally, this seems to be translating into increased spend, which is +5.6% up across the market compared to 2022 in real terms.
Cities, unsurprisingly, attract the lion’s share of domestic travel, and this lead strengthened in the first half of 2025, with city-based trips rising by 38.2% YoY in the first half of the year. As a result, city trips accounted for 62.9% of all domestic trips taken January to June 2025, up from 52.9% in the same period of 2024. The growth in city trips was evenly split by purpose, with business travel up 45.4% and holiday travel rising 53.1% compared to H1 2024, signalling a broad-based recovery in urban tourism.
And while both segments are growing, the rebound in business tourism marks a notable shift, as this type of travel saw a slower recovery post-pandemic due to the rise of remote working and the ability to hold conferences virtually rather than in person.
London continues to lead the market for business stays, recording 576,000 trips in the first half of 2025. However, the North West is emerging as a strong competitor, with business trips to cities rising by 153.3% YoY to 404,000, narrowing the gap with London, which saw a more modest 45.6% increase.
The North West presents a compelling option for cost-conscious businesses, with ADRs at just 42.0% of London’s, offering significant value without compromising access to key regional hubs. This also reflects a longer-term shift, with half-year 2025 data showing a three-year CAGR of 13.7% for business travel to the North West, outpacing London’s 11.4% over the same period. The surge in business demand is a key driver of RevPAR growth across the North West, with performance surpassing both the regional and London averages.
Reflecting the rise in business travel, growth in city-based tourism is being driven by working-age adults (16–54), whose domestic holiday trips increased by 57.8% YoY in the first half of 2025. By contrast, the only life stage group to record a decline in city travel was retirement-age adults, with trips down 32.7% over the same period. However, this group appears to be shifting their preferences, with holiday travel to seaside destinations and small towns rising by 16.8% and 41.3%, respectively.
The recovery in domestic tourism is being driven by younger, working-age groups and is increasingly concentrated in urban centres. Regional cities such as Manchester and Liverpool are emerging as cost-effective alternatives to London, signalling a shift in travel patterns and presenting new opportunities for growth across the UK hotel market.
Ruby Stella, London.
Savills sold the Ruby Stella Hotel in London to LaSalle Investment Management on behalf of RE Capital.
Regional cities
Despite subdued domestic consumer confidence, regional cities and leisure-led destinations are showing strong RevPAR growth. Interestingly, markets with a high proportion of domestic demand are leading the way. With the exception of Preston, all top ten growth markets have seen supply increases of less than 1%, yet RevPAR growth remains robust.
Ipswich tops the list with 13.4% RevPAR growth YoY, boosted by Ed Sheeran’s three-night run at Portman Road in July.
Harrogate follows with 10.8%, highlighting a broader trend: leisure and staycation destinations are performing well. The Lake District and Blackpool also posted strong gains.
This contrasts sharply with the overall regional UK RevPAR growth of just 0.3%, dragged down by larger cities facing more performance challenges. Looking ahead, regional markets are well-positioned to benefit from rising domestic travel. They offer better value for money and still operate at lower occupancy levels, leaving room for further growth.
Eden Hall, Nottinghamshire.
Savills advised on the recapitalisation of Barons Eden, supporting its acquisition by Alchemy Partners.
UK hotel investment market update
Q3 2025 saw a modest uplift in UK hotel investment volumes, totalling £1.04 billion, a +23.8% increase YoY. This growth was largely driven by single-asset transactions, which accounted for 91.7% of total Q3 volumes. While overall activity remained subdued compared to long-term trends, Q3 single asset volumes were up 58.6% on the ten-year Q3 average. Overall investment volumes fell just shy of long-term trends, at 4.7% below.
London led the UK hotel investment market in Q3, with volumes reaching £697 million, up 42.1% YoY. This reflects both the capital’s dominant share of UK hotel stock and a rebound in investor appetite, despite ongoing operational headwinds. This sentiment is reinforced by yield compression, with London prime yields coming in by 25 bps on VP/Franchise assets in 2025.
Looking ahead, improving debt costs, supported by a stabilising five-year SONIA swap rate and downward pressure on lending margins, could further enhance deal feasibility and pricing, particularly for core single asset opportunities. However, investor caution remains, contributing to ‘deal drag’, especially for larger single asset and portfolio transactions. This is likely to persist into Q4, given the UK Budget delay to November and a diminishing outlook for further central bank rate cuts.
For 2025 YTD, UK hotel investment volumes totalled £3.01 billion, down -28.6% YoY, primarily due to elevated 2024 volumes driven by large portfolio completions. Despite this, single-asset volumes have remained strong, totalling £2.67 billion, up +33.1% YoY and +38.3% above the ten-year YTD average. This aligns with Savills early-year expectations that groups would begin to break up portfolios and release individual assets to the market.
Domestic owner-operators have dominated 2025 acquisitions, accounting for 44.5% of volumes (totalling £1.22 billion YTD). This represents an increase of 3.7% YoY, and a +77.2% increase against the ten-year average, with homegrown players increasing activity by +143% YoY and +202% above the ten-year average. This surge reflects confidence in the UK market and a strategic push to grow platforms, with notable deals such as Barons Eden highlighting this trend.
Encouragingly, international asset managers have also re-entered the market, focusing on value-add opportunities. Acquisition volumes by asset management-type buyers totalled £733.8 million, up +18.0% YoY, with international players accounting for 60% of this and reporting a YoY increase of over 1,000%. Additionally, UK pension funds have increased activity, with YTD volumes at £299.2 million, up +31.0% YoY, driven by diversification strategies and long-term sector fundamentals. Interestingly, some are now acquiring hotels on structures other than leases, suggesting a shift toward operational upside—a trend that could reshape the market if it becomes more widespread (e.g., L&G acquisition of the dual-branded Hyatt House and Hyatt Place, Leeds).
While London’s YTD headline volumes reached £1.47 billion, down -29.7% YoY, this was largely due to fewer portfolio deals. Single asset volumes were up 6.0% YoY, and transaction count rose +14.8%, indicating increased deal activity despite lower aggregate volumes.
Importantly, several regional markets have seen dramatic increases in activity, contributing positively to the overall picture. Scotland recorded £316.2 million, up +85.2% YoY; the South West rose to £180.2 million, up +360.5% YoY; and the West Midlands reached £255.8 million, up +310.3% YoY. YTD, regional volumes totalled £1.30 billion, more than double the same period in 2024, reflecting a broadening of investor interest beyond traditional core markets.
While the first half of the year was marked by operational and investor uncertainty, sentiment has improved through Q3, particularly in the single asset space. Nonetheless, headwinds remain.
One area of taxation hoteliers will be watching closely is business rates, with the 2026 revaluation based on 2024 earnings potentially leading to higher costs from April next year.
Given these dynamics, we currently forecast year-end volumes to fall shy of the ten-year average of £4.85 billion. While some may expect volumes closer to £3.5–4.0 billion, the increase in single-asset transactions, particularly in London and several regions, paints a more positive picture of investor sentiment and market resilience heading into 2026.
"The UK continues to be the largest hotel investment market in Europe, and in 2025, the market has been dominated by single-asset transactions.
In part, this is driven by non-core disposals from last year’s large portfolio deals; more fundamentally, it demonstrates the strength and resilience of this part of the market.
Driving strong operational performance remains a major challenge, as are the wider geopolitical and macroeconomic conditions.
However, this is now the new normal; investors are recognising this, and we are seeing an increased interest in bringing hotels to market next year.
We anticipate a solid end to 2025 and a further increase in transaction activity in 2026, with more portfolio deals expected."
Case study: Barons Eden
Barons Eden Group is a distinguished, best-in-class, UK destination resort platform with two of the largest spas in Europe.
The multi-award-winning hospitality business benefits from a sophisticated and well-capitalised central platform that delivers multiple, non-seasonal revenue streams and a high proportion of direct and repeat business.
The portfolio includes the award-winning Hoar Cross Hall, a stately countryside retreat in Staffordshire, and Eden Hall, a premier day spa in Nottinghamshire, both offering extensive thermal spas, tranquil treatment suites, and curated dining experiences.
By combining the sector-specific expertise of the Hotel Capital Markets team with the financial restructuring capabilities of Savills Capital Advisors, Savills successfully completed the recapitalisation process with Alchemy Partners on behalf of the shareholders.
The Barons Eden acquisition was one of the largest portfolio transactions in H1 2025, with the incoming investment from Alchemy Partners providing growth equity to further expand the platform.