Growth in luxury hotel room rates fails to translate into profits as staff costs bite
Luxury hotel room rates continued their upward trajectory last year, but increased cost pressures meant this failed to reach the bottom line, RSM Hotels Tracker: Focus on Asset Classes shows.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows average room rates of UK luxury hotels rose 6% from £358.69 in 2024 to £379.14 in 2025, with London increasing from £432.06 to £459.54 in the same period. Room rates of UK mid market hotels also ticked up from £135.75 to £141.82, but dipped from £97.77 to £95.83 in the budget market.
All asset classes saw a rise in occupancy, with UK luxury hotels up from 69.8% in 2024 to 71.1% in 2025, the mid market rose from 78.1% to 79.6% and budget hotels were up from 75.3% to 76.1%. In London, occupancy was flat for luxury hotels (72.3% in 2024 vs 72.8% in 2025) and the mid market (83.2% vs 83.6%), but increased from 77.2% to 81.2% for budget hotels.
Gross operating profits per available room (GOP PAR) for UK luxury hotels were flat at £127.53 in 2025, compared to £127.50 the previous year, but dipped from £154.69 to £150.99 in the London luxury market. GOP PAR was also flat for UK budget hotels at £34.10 in 2024 versus £34.49 in 2025, but rose from £54.96 to £59.37 in the mid market.
Chris Tate, partner and head of hotels at RSM UK, said: “While consumers in the luxury hotel market tend to be less susceptible to price rises, allowing hoteliers to increase room rates, this segment of the market is not immune to cost increases. In fact, the continued upward trajectory of luxury hotel room rates is no longer reaching the bottom line, with the sharp rise in staff costs and food inflation largely to blame.
“Whereas, despite average room rates going down, profit for budget hotels remains steady as they find innovative ways to bring in efficiencies and cut back on staff costs, such as through the automation of processes. However, the higher price point of luxury hotels means they’re expected to provide a more bespoke, premium customer experience, with their staff being at the heart of this. There are also more headwinds to come as business rates increase - hitting the larger, more expensive properties the hardest - alongside geopolitical tensions which could have a knock-on impact on the tourism industry.
“It’s crucial that hoteliers innovate to stay relevant and stand out from the fierce competition, which is only expected to get tougher as the UK’s hotel pipeline grows, particularly in the luxury market. Identifying operational efficiencies will be key, including using AI to streamline processes but not at the detriment of customer experience.”
Robyn Duffy, consumer markets senior analyst at RSM UK, added: “There has been a fundamental shift in spending towards luxury experiences and away from more traditional luxury goods. That pivot has played directly into the hands of the UK luxury hotels sector. The UK’s cultural currency is firmly back in action. Our music scene is thriving, and with the World Cup drawing global sporting attention across the Atlantic this year, we anticipate a halo effect as American tourists look to reconnect with the roots of the game. The UK is once again front of mind for major events, reflected in London Heathrow retaining its position as Europe’s busiest aviation hub in 2025, with passenger numbers rising 0.7% to 84.5m.
“At home, disposable incomes remain under pressure and consumer confidence fragile, which won’t be helped by current tensions in the Middle East potentially leading to a rise in inflation and energy prices. That said, appetite for premium experiences is still evident; the challenge for hoteliers is ensuring that strong demand translates into sustainable profitability. With operating costs elevated and revenue growth becoming harder won, innovation and operational discipline will be critical.”