Consumers trade up in hotels as cost-of-living crisis eases, RSM finds

Consumers are ‘trading up’ in their choice of hotel as the cost-of-living pressure eases, causing demand for budget hotels to dwindle, according to data from RSM.

Occupancy of UK hotels increased year-on-year from 73% to 76% for luxury hotels in August and from 80% to 82% for mid market hotels.

However, budget hotels saw a decrease from 83% to 80%, suggesting consumers are splurging more on hotels as they start to feel like they have more money in their pocket.

The London hotel market mirrored this trend, with budget hotels seeing an even bigger drop year-on-year from 86% to 79% in August.

In line with increased demand, average room rates of UK luxury hotels jumped from £333.33 in August 2023 to £380.30 in August 2024.

Budget and mid market hotels only saw a slight increase in rates, from £101.49 to £103.94 and £131.89 to £136.33, respectively.

Room rates of London luxury hotels saw an even more significant year-on-year increase from £387.93 to £450.71 in August.

Gross operating profits (GOP) of UK budget hotels were up year-on-year from £37.24 to £40.06 in August, and from £49.15 to £55.18 in the middle market.

The biggest increase was in GOP of luxury hotels which rose from £119.49 to £147.23 in the UK in August, and from £127.43 to £164.31 in London.

Chris Tate, head of hotels and accommodation at RSM UK, said: “With uncertainty surrounding the upcoming Budget, consumer confidence took a significant hit in September. However, the summer was a different story as consumers finally started to feel the benefits of improvements in the economy and National Insurance cuts earlier in the year.

“This resulted in consumers making different choices for their UK staycations. Last year, we saw more consumers opting for budget hotels in order to cut costs, leading the middle market to feel the biggest squeeze; but there are clear signs that trend has now reversed.”

He added: “Experiences remain a priority, with consumers willing to spend their extra money on a more premium hotel, as the luxury hotel market continues to thrive. It was arguably the least impacted segment of the hotel industry during the cost-of-living crisis and is experiencing an even bigger boost now that consumers have more money in their pocket.

Demand shows little signs of waning in luxury, with hoteliers able to charge record room rates in July. This demand isn’t going unnoticed as the supply of new luxury hotels continues to grow. The sector benefited from a strong summer this year, but hoteliers will be hoping the upcoming Budget doesn’t derail consumer confidence further.”