Growth of room rates in UK hotels slows in July

The rate of growth in room rates slowed across the UK last month due to a fall in consumer confidence and the wetter weather, according to the latest RSM Hotels Tracker.

Nonetheless, UK hotels saw an overall increase in occupancy, room rates and gross operating profits in July as the sector returned to “the normal seasonal peaks and troughs”. 

The latest data found that occupancy rates continued to creep up from 81.5% in June to 82.7% in July for UK hotels, and from 82.6% to 85.7% in London. Occupancy is now almost at pre-pandemic levels, at 86.2% (UK) and 88.9% (London) in July 2019. 

Meanwhile, the average daily rates (ADR) of occupied rooms increased slightly from £162.64 (June) to £164.49 (July) in the UK and rose from £253.09 to £257.58 in London. Room rates have been on an upward trajectory since the start of the year, according to RSM, climbing “significantly” from £116.85 (UK) and £177.94 (London) in January 2023.

Elsewhere, RevPAR was up from £132.55 (June) to £136.11 (July) in the UK and from £208.95 to £220.71 in London. 

Gross operating profits of UK hotels also increased from 41.8% to 42.1% in July but fell from 47.9% to 47.8% in London. 

Chris Tate, head of hotels and accommodation at RSM UK, said: “Despite the wet weather and a drop in consumer confidence in July, that didn’t filter through to the hotel sector. The growth in room rates may have cooled off last month, but rates and occupancy have been strong all year, so there’s only so much that hoteliers can reasonably do to increase their gross operating profits.

“Consumer demand in the hotel industry remains bullish and bucks the decline in spending seen in other sectors such as retail. Hoteliers will be making the most of the high demand now before summer comes to an end. The upcoming seasonal drop in demand, combined with the challenge of refinancing and higher cost of finance is when the real pain will set in. Hotels needed to be prepared, as after all, they have been relatively shielded from the full impact of interest rates so far.”

Thomas Pugh, economist at RSM UK, added: “A strong performance in the hotel sector in July underscores the resilience of the broader economy. Indeed, consumers seem willing to spend on experiences over goods. But much of that has been due to pent up demand from the pandemic, which will start to wane soon. 

“Trading will be difficult for the rest of the year. Admittedly, consumers’ real incomes will increase over the next year as inflation falls sharply. But much of this increase will be eaten up by higher mortgage and rent payments. What’s more, consumer confidence fell sharply in July suggesting that the unrelenting headlines about mortgage rates are taking a toll on consumers meaning many will choose to use any extra income to pay down debt rather than splurge on holidays. A significant improvement will have to wait until the economy more broadly improves, that probably won’t be until the second half of 2024.”