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Sharp Rise in Labour Costs and Slowing Demand Put Spotlight on Cost Control and Profitability Margins for UK Hotels in 2024
The outlook for UK hotel market demand in 2025 suggests a generally positive picture. While the below-average UK GDP growth of 1.6% in 2025 could dampen UK domestic business and leisure demand, UK interest rates are predicted to reduce, resulting in a weakening pound. This could boost inbound tourism, given the UK’s relative affordability for international travelers.
There are obvious timing risks to this growth scenario, and overall demand may still be affected by global economic uncertainty and the potential for increased geopolitical disruption. However, if we discount these downside risks, we anticipate a return in inbound travel to 99% of pre-covid levels, driven by growth from the U.S., Europe, and Asia.
“The 2025 outlook for the UK hotel market is cautiously optimistic. While below-average GDP growth and softening consumer and business confidence could weigh on domestic demand, there is potential for inbound tourism to strengthen if interest rates continue to fall, with the knock on impact on the value of the pound. Despite global uncertainties, resilience in travel, especially from the US, Europe and Asia, offers encouraging signs.” Simon Hampton Partner, Real Estate & Hotels Corporate Finance, PwC UK
Taking action
The UK hotel industry faces significant challenges from above inflation increases in employer NIC costs, the minimum wage, and property rates due in April 2025. Hotel investors and operators need to consider their productivity and investment strategies, to minimise the impact of these cost pressures going forward:
Cost out programmes
Implement ‘cost out programmes’ to mitigate cost increases by providing detailed visibility into cost-saving initiatives and tracking progress. Operational cost benchmarking can reveal performance disparities and highlight savings opportunities in areas like third-party distribution, utilities, food and beverage, and labor efficiency.
Optimise operational efficiency
Reassess employment models and productivity improvements. Operators should consider outsourcing non-core administration and service functions. Focus on investment in automating working practices and operations such as multi-skilling to maintain service levels, review of supply chain cost efficiency, invest in employee wellbeing and personal development to help reduce staff turnover and maintain a productive and lean level of headcount.
Invest in energy efficiency and waste reduction
Invest in sustainable energy saving technologies. Measure consumption through regular energy audits and reduce waste to lower disposal costs. Examples include reducing single use items and implementing water saving measures.
Optimise capital structure to maximise value
With interest rates expected to reduce gradually but remain higher than recent times, hotel investors and owners should optimise their capital structures by reducing existing costs, streamlining financing, and ensuring a sustainable funding structure to maximise value.
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