When we last reported on the hotel sector in January 2025, the UK economy was regressing from what had been an encouraging first half in 2024. Since then, almost all key indicators have deteriorated further. Our economic overview for November 2025 commented on flatlining GDP, inflation steady but sticky at too high a level and a weakening labour market.
Almost six years since the world was plunged into the pandemic, the gross disruption of those years has been followed by a succession of further economic shocks from rampant cost inflation generated by the Ukraine war, surging interest rates and a cost-of-living crisis slashing consumers’ disposable income. Then the 2024 Autumn Budget significantly hiked labour and other costs for businesses across the whole economy and now the National Living Wage is to be increased at twice the rate of inflation.
Another potential set of challenges could await in the next Budget, scheduled for the end of this month. The strong likelihood of tax rises and their potential to damage consumer confidence and spending power just as the hotel sector goes into one of its key trading periods over the festive season will be worrying all hotel operators.
To show the financial environment in which the sector is dealing with these complex issues, we have once again analysed the latest published accounts of every hotel company in the UK and compared the current position with equivalent data back to September 2023. This research shows that the risk profile of the sector is poor overall. It has deteriorated markedly and consistently over the past two years.
Almost the only positive is the reduction of debt levels for the sector as a whole, but particularly by the largest hotel operators. Nevertheless, it remains a concern that this may have been achieved at the expense of the constant investment essential to deliver the facilities and experiences expected by ever more demanding hotel guests.
We remain frustrated by the long delay allowed for filing accounts at Companies House, which means that at any point in time, accounting information in the public domain is between nine and eighteen months out of date.
Market characteristics
Unfortunately, there is a noticeable lack of industry-wide data specific to hotels and similar accommodation. This vital information is generally buried amid the statistics for the overall hospitality sector. However, the UK hotel market is predicted to generate revenues of £22.9bn in 2025, down from £24.3bn in 2024 and £24.7bn the year before according to the latest data published in July 2025 by Statista. Data published in September 2025 in the House of Commons Library includes an estimate that the hospitality sector as a whole contributed £69.5bn (2.8%) to overall UK GDP in 2023.
Our research for this report confirms that hotel operators in the UK have total assets of £37.1bn, borrow £9.6bn and have an overall net worth of £11.4bn. All of these statistics have reduced since September 2023, indicating an industry that is shrinking rather than growing.
Estimates vary, but there are believed to be approximately 10,000 hotel businesses in the UK, although the number of individual hotels or hotel rooms remain unclear, as does the total number of people employed specifically in hotel businesses rather than in hospitality as a whole. Our research identified some 7,000 companies registered in the UK, which claim to be hotel businesses. The difference will be accounted for in part by those businesses run as unincorporated entities and also by the difficulty some companies have in deciding whether they are running hotels that serve food and drink, or alternatively, pubs and restaurants with rooms.
Performance metrics
A detailed study of the UK hotel industry published by sector specialists Savills provides many insights into operational statistics, but amongst the key points it highlights that GOPPAR (Gross Operating Profit Per Available Room) is down 4.2% year to date in 2025, driven by a 4.1% increase in labour costs due to wage inflation, National Insurance changes and hiring challenges. While operating expenses are lower, profit margins have still fallen to 34.5%, a 3.6% decline by comparison with 2024. This confirms that hoteliers have done a good job in offsetting some of the increased labour costs, but that profitability has still been damaged.
At the same time, the scope for increasing prices to compensate for higher costs is being restricted by an oversupply of rooms, as well as consumer resistance prompted by cost of living concerns. RevPAR (Revenue Per Available Room) has declined marginally year to date in 2025, although there was some improvement in July and August providing hope of a stronger H2 2025.
These pricing issues are illustrated by ADRs (Average Daily Rates), which had seen substantial growth in the immediate post-pandemic period but have now have largely plateaued since 2023. They have recorded a modest YTD year-on-year increase of just 0.1% for the UK as a whole as of July 2025.
Financial risk profile
There are currently 7,244 companies registered at Companies House, whose businesses are recorded as running hotels or similar accommodation. We analysed their finances using the data analytical system at Company Watch, the financial health monitoring specialists. A summary of our research can be found here.
Overall financial health score
Our analysis of the sector’s finances reveals that the average financial health score awarded by the Company Watch system (H-Score®) is only 35 out of a maximum of 100, compared to the whole economy where an average closer to 45 would be expected. This rating has fallen consistently from 39 in September 2023, 37 in June 2024 and 36 in December 2024.
Vulnerable companies
Half of all hospitality companies (3,595) are in the Company Watch warning area with an H-Score of 25 or less. Historically going back more than twenty-five years, this low level of H-Score indicates that one in four of these vulnerable entities will file for insolvency or undergo a significant financial restructuring during the next three years based on an analysis of their latest published accounts and other data. This is very significantly worse than two years ago in September 2023 when only 45% were in the warning area.
Zombie companies
More than one in five (22% or 1,564) hospitality companies had negative balance sheets (by at least a de minimis figure of £20k). This is a deterioration since September 2023, when 21% were zombies. Their overall combined deficits also continue to escalate. This time, the shortfall adds up to £2.6bn, up from £2.4bn in December 2024, £2.1bn in July 2024 and £2bn in September 2023.
Negative working capital
An even more worrying finding is that 3,118 (43%) of the companies have negative working capital of at least £20k. This means that their short-term liabilities due for payment in less than a year exceed their ‘quick’, easily realisable assets such as receivables, inventory and cash. This compares unfavourably with 2,762 (40%) with negative working capital in September 2023.
The overall working capital shortfall of these companies now totals £3.4bn, which is marginally higher than in September 2023. A deficit position on working capital shows a vulnerable financial profile, so by any judgment, this is an undesirable and risky financial model for the industry.
It is particularly concerning to find that the smallest hotel businesses have a very high incidence of negative working capital. 35% of companies with total assets under £500k are in this adverse position, compared to 56% of those with assets between £500k and £5m and 53% of those with assets over £5m. Larger companies with substantial assets may be using the ‘private equity’ style of funding, deliberately choosing to have high levels of debt rather than funding their business models with equity finance, but smaller businesses can’t rely on this financial luxury.
Smaller hotel businesses
Businesses with less asset value in their balance sheets will always be at greater financial risk than larger and better capitalised entities. For hotel operators, 60% (4,355) have total assets of less than £500k. Their average financial health rating is just 30 out of 100, compared to 51 for those hotel businesses with total assets of £5m or more.
55% of these smaller companies are in the Company Watch warning area, 24% of them are zombies and 35% have negative working capital. Worse still, this cohort of businesses has bucked the trend for debt reduction which can be seen for small businesses across a broad range of industry sectors. The average borrowings by smaller hotel operators is now £16,814, sharply up by 63% since the end of 2024 and 28% higher than in September 2023.
Business failures
Fortunately, formal insolvency filings by hotel operators are currently and have been historically low. Total hotel insolvencies in England & Wales in the twelve months to August 2025 were 155. This represents only 0.6% of all corporate insolvencies.
Staffing issues
Although vacancy levels across the hospitality sector have fallen steadily for some time and at 76,000 are finally back below the immediate pre-pandemic level of 86,000, recruitment and retention of staff are still major issues for many hotel operators. Staff shortages can restrict the range of services offered by a hotel as well as the number of rooms that can be serviced and therefore made available to guests.
Less obvious but probably more serious is the impact that this problem is having on the quality of service that hotels can offer their guests, which is unfortunate at a time when operators are struggling to raise room rates to mitigate the profit pressure caused by cost increases.
What will 2026 bring for the hotel trade?
Detailed predictions for where the UK hotel market is heading in 2026 are unusually thin on the ground, possibly because commentators are waiting to see what the Autumn Budget will bring. Nevertheless, some possible trends have been flagged up in trade media:
- Modest RevPAR growth is expected in both London and regional markets, primarily driven by increased room rates rather than higher occupancy.
- Operational cost pressures: high labour costs due to wage inflation, National Insurance changes, and ongoing hiring challenges are expected to go on squeezing profit margins. Hoteliers will need to focus on efficiency and technology adoption to manage these costs.
- Business rates revaluation: operators face potential higher costs from April 2026, when business rates levels are due to reflect revaluations based on 2024 earnings.
- Domestic tourism and regional strength: regional cities, particularly those with a high proportion of domestic demand and a vibrant events calendar (such as Manchester and Edinburgh), are expected to show strong performance.
- Technology adoption will continue apace as AI and other applications are used even more to provide smart room features, automated check-in facilities and personalised guest services. The aim will be to streamline operations and enhance guest experience.
Geopolitical uncertainty continues to make hoteliers wary about inbound foreign tourism, while the continued sluggish performance of the UK economy and the inevitable tax rises in the forthcoming Autumn Budget seem likely to promote continuing consumer caution.
A priority action list for hotel businesses
It is worth reiterating the strategies we identified in our previous hotel sector report in January 2025:
- How robust is performance data? Hotels are complex businesses, so it’s important for management to ensure they have mechanisms in place to know promptly and accurately which parts are performing and which are not, so that appropriate remedial action can be taken.
- Review the cost and effectiveness of marketing, with particular focus on reacting to and understanding guest feedback. Social media remains a priority, both in terms of pulling in guests and maintaining awareness in real time of public opinion about the business.
- Look for greater operational efficiencies and cost savings, using appropriate technology where it can help.
- The above needs to be combined with regular analyse of the guest experience honestly and constructively, especially the impact of technology deployed at the reservation handling point, guest arrivals and in-room facilities. Not every guest is tech savvy and some are tech resistant, but on the other hand every guest will appreciate the better understanding of their preferences that some aspects of technology can offer.
- Have a robust but efficient rolling forecasting process that focuses on significant variances from budgets as learning points, but which avoids distracting overworked management with excessive in-depth analysis.
- Maintain open and honest communication and as strong a relationship as possible with key stakeholders such as investors, lenders, suppliers, credit insurers and staff.
- Be willing to call in external expertise to help with problems. It is unlikely that any team will have the breadth of knowledge and experience, never mind the capacity to cope with every challenge their business and external factors beyond their control may throw at them. Managed well, such assistance should always be a net benefit, not a cost.
If you would like to read our previous hospitality, and more specifically, hotel sector reports, click here.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Directors or Partners who can discuss options with you.
We have offices nationwide and by contacting us on 0203 995 6380, or emailing support@opusllp.com will be able to get immediate assistance.