UK holidaymakers are facing higher hotel rates and less choice for domestic breaks as the sector contends with wage hikes, high interest rates and increasing costs in the supply chain.
Many in the hotel sector have reservations over whether to vacate the business. Others have been forced to close, with hotel insolvencies jumping 19 per cent in the 12 months to 31 January, according to accountancy group UHY Hacker Young.
Two venues that haven’t needed to change the bedsheets this spring include The Courthouse in Knutsford, Cheshire, which shut in January after owner Flat Cap Hotels fell into administration; and popular city-break brand Birch, which was forced to close last year. It had sites in Cheshunt, Hertfordshire, and Selsdon, south London.
High costs facing hoteliers are being passed onto consumers, research suggests. Hotel room rates having increased by up to 82 per cent over the past five years, according to data sourced for i by hospitality data intelligence firm Lighthouse. The prices were an average across all available star categories in each destination.
Edinburgh accounted for the highest price increase, followed by Belfast (47 per cent) and Cardiff (46 per cent). There was a significant increase in prices across 18 of 19 destinations. Cornwall was the only place in which average hotel room rates had not increased (down two per cent compared to 2019).
The 10 cities with the biggest hotel room price increases between 2019 and 2024
- Edinburgh: 82.32 per cent
- Belfast: 47.60 per cent
- Cardiff: 46.86 per cent
- Glasgow: 44.21 per cent
- Aberdeen: 40.88 per cent
- Bristol: 33.19 per cent
- Nottingham: 32.48 per cent
- Brighton: 26.73 per cent
- London: 26.53 per cent
- Newcastle: 26.06 per cent
Kate Nicholls, chief executive of trade body UKHospitality, told i: “These figures demonstrate the growing costs burden being shouldered by the sector.
“To date, hotels have endeavoured to absorb the cost increases that they have faced, but some may have reached the difficult point where they’re no longer able to do so, and so face a difficult choice of either passing them on to consumers or risking the viability of their businesses.
“Hotels are a major employer in towns and cities across the UK and it’s crucial that the Government, devolved administrations and local authorities take steps to help support them.
“Action to mitigate costs through fixing businesses rates, easing employment costs and reducing VAT for hospitality would free up much-needed financial headroom, while a streamlined planning system and more permissive approach to licensing can incentivise businesses to invest and grow.”
The five places with the most expensive average hotel room rates in 2024
- London: £316.51
- Edinburgh: £291.78
- Windermere (Lake District): £297.30
- Oxford: £187.06
- Cornwall: £166.98
Neil Ellis, chair of the Edinburgh Hotels Association, said of the city: “Edinburgh is a fantastic Unesco world heritage site, with more green spaces than any other city in the UK, a year-round vibrant cultural and festival offering, a world renowned place to educate, do business, with a fantastic array of hotels, restaurants, visitor attractions and retail but more importantly, [it] offers direct employment to over 32,000 hardworking hospitality professionals.
“Maintaining that comes at a cost which has seen all operators having to increase pricing to combat their huge operating bills since 2019.”
Tips to get the best hotel deals
Chelsea Dickenson, also known as the Cheap Holiday Expert, is dedicated to finding ways to travel on a budget.
Her suggestions for finding cheaper hotel rates include being flexible about when you travel.
“I’ve found that booking a hotel in the UK has become all about when to stay rather than where to stay,” she says.
If you are bound to a specific travel window, consider being a little creative about where you stay: “If everything in your desired destination is just too expensive, try looking along transport links that link quickly to the centre instead.
“For example, an upcoming stay (two adults on 18 May) at the Travelodge in Kings Cross will cost you £173 – but just a nine-minute journey on the Piccadilly line away is Travelodge London Finsbury Park, which comes in at £139 for the same night.”
He said that unlike England, help and support for hospitality had been minimal in Scotland recently, specifically business rate support.
Speaking of the Barnett formula used to calculate public spending levels in Scotland, he added: “Whereas 75 per cent rate relief was afforded to English hotels this was not passed on through Barnett consequentials to Scotland, something we have, through UKHospitality, campaigned for from Scottish Government.”
Mr Ellis pointed out that many operators were still paying off Covid loans, “which has been hampered by the additional burden of higher interest rates. These rates further dilute continued investment into Edinburgh which has seen some projects stall or be shelved.
“Increases in labour shortages since Brexit have compounded inflation increases in payroll costs, which have had to rise in order to be able to attract and retain talent.”
Domestic tourists are particularly valuable, as the number of visits to the UK by international travellers is still behind pre-Covid levels – numbers for July to September 2023 were down eight per cent on the same period in 2019.
Among UK adults polled in Visit Britain’s latest monthly research, 76 per cent said they were intending to take an overnight trip in their home country in the next 12 months. The most common reason cited as a barrier to a UK break was the rising cost of living.
UK consumers are facing squeezed household budgets, from higher energy and food bills, to mortgage rate increases and record-high rents (Rightmove found that the average advertised rent outside of London was 8.5 per cent higher than a year earlier, while rates were up by 5.3 per cent year-on-year in the capital).
With consumer inflation has come upward pressure on wages. Hotels have felt the pain from an increase in staff costs, and the latest National Living Wage increase of 9.8 per cent will add more.
“Any increase in costs will be felt by a business, but wages in particular form the largest single cost for a hotel,” says Robert Stapleton, director for hotel capital markets at Savills.
“The increase in minimum wage impacts across all payroll has the effect of narrowing the gap between pay grades, which then increases the pressure on owners to increase wages across all levels of employee.”
He highlights further bad news for the industry, with business rates set to be revalued this year: “Whilst they dropped for most hotels in 2020, it is possible these will go back up in 2026 when this revaluation comes into effect.”
Meanwhile, the rise in financing costs has made debt service more expensive, he added.
Another challenge is that the slowing economy has forced some businesses to cut back on conferences and “away days”. These corporate events can be a strong source of revenue for hotels. “Some business trade may ratchet down from bigger hotels to cheaper hotels because businesses are feeling the pinch as well,” says Brian Johnson, partner at UHY Hacker Young.
Chris Penn, co-founder of Birch, which fell into administration last year, believes it’s the mid-priced hotel sector that’s being particularly squeezed. “The super-luxe is trading incredibly well with lots of luxe openings and higher rates than before, while budget groups are performing well as those that challenged by cost of living are buying down into budget and finding value.
“Unless they differentiate, it’s the middle and four-star hotels finding it harder to perform, particularly because cost of labour and goods are going up and they don’t have the volume [of customers] to survive through that.”
Over in the Forest of Dean, Tudor Farmhouse Hotel co-owner Hari Fell, who has been running the 20-bedroom hotel for over 20 years, says trade has been quiet recently due to poor weather, with the start of the season being slower than usual. But like other businesses, they’ve also felt pressure in other ways too.
“We are a Real Living Wage employer so wages went up 10 per cent this year, and we’re still being affected by high prices,” Fell says. “For example, we just had our gas renewal through and we’re looking at a 60 per cent increase in costs compared to the year before. There’s ongoing pressure and we haven’t really seen the reduction in food prices people are talking about.”
She says the business has taken some of the hit, while the cost has also been slightly passed onto the customer. To help bring in more revenue, they switched to a dynamic pricing model in November. “It seems to be working well so far,” she adds.
To generate extra revenue they have also added experiences to their mix, such as stargazing safaris and Christmas craft-related breaks.
Looking ahead, Stapleton says he expects to see two key trends – the continuation of office-to-hotel conversions, which started last year and has continued into 2024; and the rise of micro-hotels, hostels and serviced apartments. “Both of these segments have performed incredibly well and, from a profit and loss perspective, are extremely efficient operations and drive high NOI [net operating income] margins,” he says.
His confidence in the sector remains high. “Hotels have demonstrated their ability to hedge inflation more effectively than most use classes [uses of land and buildings] and that has translated into lots of interest in the sector.
“Sadly, it is likely that we will see more insolvencies in the sector, however these are likely to be where there is already a structural issue within the organisation of capital financing the business rather than being purely based upon a challenging trading environment.”