Marketbeat UK - H2 2025

INVESTMENT ACTIVITY

UK hotel transaction volumes reached £4.9bn in 2025. Although this represented a 23% decline from 2024 (£6.3bn), the previous year had been the strongest since 2019, supported by several large-scale portfolio deals. On the other hand, 2025 activity shifted toward single‑asset transactions, with volumes rising 37% year‑on‑year and accounting for 76% (£3.7bn) of total investment, while portfolio deals comprised the remaining 24% (£1.2bn). Portfolio activity fell materially from £3.56bn in 2024, reflecting ongoing fundraising constraints for private equity and a continued focus on higher-return strategies. Activity in regional markets also softened, with transaction volumes down 28% year-on-year to £2.2bn. Although the bank rate eased during 2025, this was largely priced into five-year swap rates. Further reductions anticipated in 2026 should support improving business confidence and debt market conditions.

PRIME YIELDS

Prime yields were broadly stable during 2025, reflecting continued depth of demand for high-quality assets despite softer transaction volumes. If transaction activity continues to strengthen, building on the momentum seen in H2 2025 (+18% YoY), and financing conditions remain favorable, there is a potential scope for yield sharpening in the second half of 2026.

SUPPLY & DEMAND

In the second half of the year, supply rose 2.3%, with demand rising 10.3%, offsetting the decline in H1. Looking ahead, both are expected to increase significantly, with an expected supply growth of 4.4% outpacing demand  growth of 3.7% by the end of the first quarter of 2026.

PERFORMANCE

RevPAR experienced significant growth during the second half of 2025,  rising by a 14.3%, largely driven by a 23.2% increase in ADR, which offsets the poor H1 performance. Occupancy increased from 74.6% in H1 to 80.4% in H2. Whilst top line performance in  London can be expected to improve marginally, the regions are expected to remain stagnant. Over the next 3 years, regional RevPAR can be expected to increase by only 6.8%, whereas London is expected to grow by 10.6%. The stability of the topline will put pressure on profitability as the impacts of the increase in business rates and rising cost of labour flow through to NOI.