Staff costs in the UK hotel sector jumped in January, hitting profits even before April’s rise in employers’ National Insurance contributions (NICs) and National Minimum Wage (NMW), meaning pressures are only set to intensify, according to the RSM Hotels Tracker.
The data, which is compiled and produced by Hotstats and analysed by RSM UK, shows total hotel payroll costs (as a percentage of total revenue) rose from 28.8% in December 2024 to 39.6% in January 2025 for UK hotels, and from 25.4% to 37.7% for the London market. Year-on-year, payroll costs (as a % of revenue) increased from 38.8% in January 2024 to 39.6% in January 2025 in the UK, and from 36.8% to 37.7% in London.
Occupancy of UK hotels was up slightly from 61.2% to 62% in January year-on-year, and from 64.7% to 65.9% in London.
Average daily rates (ADR) of occupied rooms in the UK saw a small increase from £122.09 to £123.30 in January year-on-year but were down in London from £175.20 to £173.99. Gross operating profits (GOP) were relatively flat in both the UK, from 17.4% to 17.1% in January year-on-year, and in London at 23.2% to 22.7%.
Chris Tate, partner and head of hotels at RSM UK, comments: “January is typically a quiet month for the hotel sector, so it’s positive to see even a small uptick in occupancy and room rates in the UK. However, the increase in costs faced by hoteliers is moving quicker than the increase in revenues, so the growth in room rates hasn’t made its way to the bottom line. Labour costs in particular saw a spike in January, likely driven by strong wage growth – rising at its fastest rate since 2021 – which, as a large employer of people, the hotel sector is exposed to.
“The tough start to the year is only set to intensify, with the increase in employers’ NIC and NMW coming in from April. It’s clear that hoteliers are already facing challenges with passing on additional costs, so they need to look at other options to mitigate these headwinds without putting off consumers. The good news is that consumers continue to prioritise travel and want to go away, so demand should stay strong. Despite headwinds, there are opportunities to be had this year for hoteliers that remain agile, consumer-focused and are strategic with their investments.”
Thomas Pugh, economist at RSM UK, added: “With all the business and consumer surveys pointing to growth continuing to stagnate at the start of the year, it is encouraging to see even a small up tick in hotel activity. Combining this with the large rise in retail sales in January and the increase in consumer borrowing, we could be seeing the green shoots of a rise in consumer spending. However, much will depend on whether households “animal spirits” can be revived or if consumer confidence remains in the doldrums.
“Overall, we expect a gradual rise in the economy this year as the budgeted increase in government spending and investment, and the strong real earnings growth, starts to filter through into stronger consumer spending.
“However, trade tariffs, economic uncertainty and volatility in financial markets will all weigh on growth this year and the big risk is that a global trade war has a stagflationary impact on the UK, even if we avoid direct tariffs.”