What’s in store for the London hotel sector in 2025?

According to Knight Frank, the London Hotel sector achieved an average occupancy of 82% in 2024, back to pre-pandemic levels, and an increase of 3.4% on the prior year. However, the ADR (average daily rate) fell by almost 1% to £228. The resurgence of meetings, conferences and events fuelled the recovery in occupancy, along with one-offs such as the Taylor Swift concerts.

So, what lies in store for the rest of 2025?

This is difficult to predict against the backdrop of geopolitical uncertainty with the Trump administration in the US. To date, whilst occupancy has held up so far in 2025, there continues to be some downward pressure on ADR as hotel guests seek “experiences” and value for money amidst a wider choice. Most analysts are optimistic that occupancy levels and ADR will be stable in 2025. Hotels are also getting smarter with their pricing strategies - gone are the days when the room rate for a particular room was set at the same level throughout the year. Advancements in technology have also given Hotels the tools required to flex maximising revenue at peak times, whilst remaining competitive at quieter times, much as the airlines have been doing for many years.

Whilst the revenue side of the equation for London hotels is promising, the sector faces various headwinds on the cost front. As widely publicised, the Budget 2024 increases in employer National Insurance contributions (NICs) and the minimum wage took effect from 1 April 2025 and are now starting to bite. The increase in NICs has been described as the most destructive British tax increase of modern times. Kate Nicholls, chief executive of UK Hospitality, describes the decision to hike the rate as “the biggest regressive tax change I’ve seen in 30 years.” The additional payroll costs will inevitably lead to job losses in the sector. The latest jobs figures indicate a troubling trend in the UK labour market, with the unemployment rate rising to 4.5% between January and March, the highest level in nearly four years.

These hourly rates are for the National Living Wage (for those aged 21 and over) and the National Minimum Wage (for those of at least school leaving age) – the percentage increases on the prior year are significant:

In addition to the payroll increases, Hotels will experience a reduction in rates relief. The 2025 to 2026 Retail, Hospitality and Leisure Business Rates Relief Scheme will provide eligible occupied retail, hospitality, and leisure properties with 40% relief, up to a cash cap limit of £110,000 per business. This is down from 75% in the previous 24/25 financial year, with the cash cap limit unchanged. Uncertainty remains for utility costs as well in terms of whether they will fall or rise – although there is no business energy cap, the energy price cap in the domestic market rose by 6% in April.

Other challenges

London's tourism sector is also bracing for a challenging summer as high-spending American visitors are reportedly booking fewer trips. Business leaders are urging the Government to abolish the controversial tourist tax, which prevents foreign visitors from reclaiming 20% VAT on purchases. Recent data from VisitBritain indicates that forward flight bookings from the US are down 7% compared to 2024, with similar declines from other countries. According to the business group New West End Company, the absence of tax-free shopping has already cost the West End £640m in unrealised sales, as tourists opt for destinations where they can shop without VAT. 

Artificial Intelligence (AI)

AI is currently all the rage but is it hype or reality? As always, probably somewhere in between, but with almost constant change in AI, it’s difficult to predict what the effect on hospitality will be. AI will no doubt have an impact on the sector, but it’s likely this will be predominantly in the back-office and support functions, with front-of-house remaining a people business. Technology can change and continue to support the sector, but people will remain the most important factor in delivering exceptional hospitality.

Finally, hospitality is a key contributor to the UK economy and has a major role in supporting communities and driving investment, yet it seems not to be high priority in the Government’s economic strategy. Change is needed, including how the Government will help employers bring people off welfare and train them to fill jobs in the sector. Younger people also need to be incentivised to make working in the Hospitality sector more attractive – this will require an employment and skills strategy and reform of the apprenticeship levy, as well as a clearly defined pathway of how people can progress in the sector.

The next step

If you would like any advice about the topics covered in this article, please contact Martin Jones or your usual UHY hospitality expert.