• Seasonal demand and high inflation keep margins in check and boost gross operating profit per available room (GOPPAR)
  • London records 35% uplift in total hotel revenue per available room (TRevPAR) in H1-2023, versus H1-2022

London - Hotels in the UK are experiencing a post-Covid rebound according to the latest research from global property adviser Knight Frank. London hotels achieved an occupancy rate of 82% in June 2023, a rise of 3.2 percentage points year-on-year, whilst hotels outside the capital recorded growth of four percentage points to almost 81% occupancy versus 2022.

With robust seasonal demand and persistent high inflation, many hotel operators continue to pursue a strategy of rate maximisation in lieu of full occupancy recovery, recording 8.5% and 7.6% average daily rate (ADR) growth respectively in June.

Navigating the route to recovery, whilst enduring a challenging operating environment, the UK hotel market is proving to be a strong hedge against inflation. Hotels in both London and the regions recorded ADR growth of 23% during H1-2023 versus the same period in 2019.

With a less price-sensitive clientele, London’s luxury hotels achieved an ADR growth of 38% during this same period, whilst strong leisure demand has seen regional Golf & Spa hotels increase their ADR by 40% over the same period.

The recovery of the UK hotel market is further supported by a renewed influx of overseas visitors. London’s Heathrow Airport, for instance, recorded a 5.2% month-on-month uplift in overseas visitor arrivals, boosted by a 13.5% rise in passengers from Asia/ Pacific and a 4.3% rise in arrivals from the US. Total overseas passenger arrivals of 6.68 million were just 1.9% below June 2019.

Despite rising costs, the strong revenue growth has seen resilience in terms of departmental operating income, with London recording a H1-2023 growth of 37% versus H1-2022 and the regions seeing 17% growth over the same period. UK hotels across both London and the regions, are recording departmental operating income ahead of H1-2019, up by 7% and 12% respectively.

This strong top-line performance is facilitating profit margins, keeping them just slightly below 2019 performance, whilst recording strong growth in actual GOPPAR performance. For H1-2023 London has seen GOPPAR growth of 42% versus H1-2022, whilst the regional UK has recorded 16% GOPPAR growth over the same period.

Certain hotel classes are proving they are better positioned to reap the rewards of strong revenue growth in a high-inflationary environment, with hotels which benefit from leaner cost models able to absorb cost pressures more easily.

Both London and the wider UK made a full recovery in GOPPAR versus H1-2019, with the regions ahead by 3% and London recording a 2% uplift. London achieved H1-2023 GOPPAR of £82, whilst regional UK secured a GOPPAR of £29.

London’s performance during the first half of the year has seen ADR growth continue to trend upwards and along with much improved occupancy levels, this strong occupational performance is supporting profit margins and GOPPAR growth. This is a welcome counterbalance to the softening of yields that has resulted from the increasing cost of debt, and with hotels acting as an inflation hedge, investor appetite for the sector remains strong. Karen Callahan, Head of Hotel Valuation and Partner at Knight Frank
Given these trading results, it is not surprising that inflation levels, whilst on a downward trajectory, continue to be elevated by services and in particular hotels and travel spend. Whilst the second half of 2023 will see ADR growth more stimulated by demand than inflationary pressures, the pace of ADR growth is likely to remain strong over the next quarter. RevPAR growth will be further underpinned from strengthening occupancy performance. London is set to benefit from the continued uplift in overseas arrivals, whilst revenue growth for the regions will come from a well-balanced mix of demand drivers and the focus on channelling a high-yielding segmentation mix. Philippa Goldstein, Senior Analyst, Hotels & Leisure at Knight Frank

Glossary of Terms:

  • PAR – Per Available Room
  • ADR – Average Daily Rate
  • RevPAR – Rooms Revenue Per Available Room
  • GOPPAR – Gross Operating Profit Per Available Room

Note: Source of all trading data quoted provided by HotStats, a global hotel data benchmarking company. All analysis of hotel trading data and insight provided by Knight Frank.

About Knight Frank LLP 

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, the Knight Frank network has 487 offices across 53 territories and more than 20,000 people. The Group advises clients ranging from individual owners and buyers to major developers, investors, and corporate tenants. For further information about the Firm, please visit www.knightfrank.com.

Ella Fabregat
Head of Commercial PR
Knight Frank