Budget hotels lag behind rest of market as cost pressures bite
Luxury and mid market hotels enjoyed a rise in occupancy, room rates and profits in August year-on-year, while budget hotels lagged behind as they juggle rising costs and dwindling consumer demand, RSM Hotels Tracker: Focus on Asset Classes reveals.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows average room rates of UK luxury hotels rose from £380.30 to £405.18 in August year-on-year, and from £136.33 to £141.57 for mid market hotels. Room rates in the budget hotel market fell from £103.94 to £98.21 in the same period.
Similarly with occupancy, UK luxury hotels saw an increase from 76.1% to 76.9% in August year-on-year and rose from 82.4% to 83.6% in the mid market. However, occupancy ticked down from 79.8% to 78.6% for budget hotels.
Gross operating profits per available room were also up for UK luxury and mid market hotels from £147.23 to £157.67 and £55.18 to £58.66 respectively in August year-on-year, but were down in the budget market from £40.06 to £37.24.
Chris Tate, partner and head of hotels at RSM UK, comments: “While luxury and mid market hotels continue to power ahead with a rise in demand and profits, as consumers trade up their hotel choice, budget hotels are being left behind. They already operate on lower margins, which are being squeezed even further as costs rise, and consumers splash out on more premium experiences, resulting in a double whammy. It’s encouraging to see people are still prioritising travel and hotel stays, but there are clear winners and losers in the hotel market.
“Despite an increasing supply of luxury hotels, this continues to be absorbed, as demand doesn’t seem to be plateauing. But with a pipeline of luxury hotels still under construction, it’s likely this will become a more saturated space. The arrival of new, high-spec luxury hotels means existing ones must work harder to maintain relevance and appeal in an increasingly competitive landscape.”
Robyn Duffy, consumer markets senior analyst at RSM UK, said: “Global luxury spending has undergone a clear shift in 2025. The post-pandemic boom in luxury goods is giving way to a preference for high-end travel and experience-led purchases. Economic uncertainty and rising prices across major luxury goods, exacerbated by tariffs, are prompting affluent consumers to trade handbags for holidays, redirecting spend from products to experiences. Luxury hotels, first-class airfares and “once-in-a-lifetime” travel are all benefitting from this reallocation of spend.”