INVESTMENT ACTIVITY
The UK hotel investment market witnessed a marked decline in transaction volumes during H1 2025, largely attributable to a subdued level of portfolio transactions compared to 2024. Although most UK markets saw a contraction in transaction activity, standouts such as Edinburgh and Glasgow demonstrated resilience, with Edinburgh recording a 136% increase in volume—primarily driven by high-value, single-asset transactions, including the sale of the W Edinburgh to Schroders. London, while representing 64% of the overall transaction volume, experienced a sharper year-on-year decline compared to regional markets. The overall reduction in volumes for H1 may reflect extended deal timelines, with many transactions being deferred to the second half of the year. Looking ahead, transaction activity is expected to recover as pricing expectations between buyers and sellers converge and financing conditions continue to stabilise.
PRIME YIELDS
Throughout 2025, prime yields have stabilised, especially in high barrier to entry markets and prime locations. Factors such as interest rate cuts, more accessible financing and stronger RevPAR trends can be expected to expedite a sharpening of yields towards the end of the year.
SUPPLY & DEMAND
Supply growth remained modest during the first half of 2025 with an increase of only 0.5% since January, whilst the last 12 months grew by 1.3%. While supply is projected to continue rising in the second half of the year, demand is expected to stabilise. To date, year-on-year demand has broadly aligned with supply, reflecting a relatively balanced market. However, this equilibrium is anticipated to shift as supply growth begins to outpace demand for the remainder of the year.
PERFORMANCE
Top line growth has remained stable throughout the start of the year, with a year-on-year increase of 0.8% in RevPAR figures, driven by an increase in rates. This can be expected to improve over the next 12 months with an expected increase of 2.2%, however occupancy can be expected to compress at 1.3%. Investor confidence remains cautious due to cost pressures impacting the bottom line, such as the increase in labour costs and business rates which will squeeze profitability despite top line growth.
