LONDON — Rising costs, both in people's day-to-day living and in hotel’s operations and supply chains, are the largest impediment to United Kingdom and European hotel-industry growth in 2025, according to sources.
Economic stress in the U.S. — the U.K.'s largest feeder market — could lead to fewer Americans traveling to the U.K. and Europe, placing more strain on operations, especially labor costs, they added.
Speaking at a panel titled “The rise of the hotel sector: Tailwinds & headwinds” at the Hotel Industry Development Event here, Tony Nutkins, head of hotels and healthcare at bank Coutts, said costs have been driven up noticeably, but hoteliers have retained the “ability to flex rate and respond to different levels of demand.”
He said he was positive for the industry, despite such rising costs such as increases to the National Living Wage and employer contributions to National Insurance, which begins in April.
“We’re looking with our clients at repositioning assets and streamlining costs. The sector is resilient,” he added.
Owners are cautiously optimistic, too. The oft-used term “cautious optimistic” seemed to have fallen out of use in the past few years but made several appearances at the HIDE conference.
Alison Hargreaves, senior portfolio manager at owner Archer Hotel Capital, agreed that key city-center markets in Europe are dependent on U.S. demand.
“We’ve all had 'budget volume one' that was then replaced with 'budget volume two,'" she said. "We realize as an industry that we know we have to pay better wages to retain people, but there has been a squeeze in costs. That delta has been squeezed."
Philip Lassman, vice president, head of development, Northern Europe at Accor, said that his firm enjoys a very wide geographical footprint, and this helps balance performance and risk.
“Where there are problems, we are in lots of places where there are none. In the Commonwealth of Independent States and Georgia, we’re very busy and with new builds,” he said.
Lassman said conversions rule the roost in most of Europe, but not everywhere.
Jacob Rasin, senior vice president, transactions, at Swedish owner, developer and leaser Pandox, said his firm’s policy to be flexible in ownership and operations plays well in periods of uncertainty.
He pointed to a January deal signed with Belgian operator Numa for the 100-room Hotel Hubert in Brussels, which begins on April 1. Pandox renovated and repositioned the hotel in 2017 and has managed it ever since.
The January news, Rasin said, has resulted in a significant increase in the property’s net operating income and value.
“We’re continuing to pursue acquisitions,” he said.
Hargreaves said Archer, too, was being more opportunistic.
“We have moved away from having target markets. Now, investment is in upscale to luxury, with a little bit of lifestyle, including two Hoxton hotels in London. It is more deal by deal now,” she said.
Headwinds and tailwinds
The cost of debt can be added to the list of headwinds in the U.K. and Europe, the panelists said.
In 2025, the development pipeline will see no material increase, they said, but investment activity, mergers and acquisitions, and consolidation will.
“The fall in interest rates is clearly welcome, but I would not say it was a tailwind,” Nutkins said, adding that debt will find its way to “good ideas.”
He said in the U.K., the five-year swap rate — the average of the secured overnight financing rate, the benchmark interest rate that measures the cost of the overnight borrowing of money — is about 4%, and was as low as 3.3% in September, but he did not see that as too much of a challenge either.
“It has not been a driver. It is another aspect of development funding. More important is [hoteliers] having the right proposition and the right management," Nutkins said. “Finding the right partner to get the right return on investment, that’s the difficult part."
He added he did not believe additional falls in interest rates would lead to a “massive material difference” to costs, but said “any drop builds sentiment, and that is critical.”
He said one critical question is: “Will cost pressures erode that sentiment?”
Rasin said hoteliers needed to divide the “signals from the noise. Do not let the noise get the better of you.”
He said the industry should focus on what it can control, not what it cannot.
“Making sure your teams are good. As owners, take an active role in the community. Focus on sales, focus on costs. Making people redundant is probably not the best long-term approach, but it should also be in your arsenal. We can control flexibility and adaptability. We should not become affected by 25 press articles about one statement,” he said.
Lassman said the larger the organization, the more clout it should have with national and local government policy and debate.
“As a brand leader, people look to us to see what we’re doing,” he said.
Hargreaves said the industry should take pride in that it has always been able to pivot and find new guests.
“That is pretty unique to our industry,” she said.
Consumer confidence
Another criterion offsetting headwinds is continued customer confidence. The panelists were upbeat in that regard.
“We’re not seeing a decline in consumer confidence, especially in markets that have a strong leisure demand, aspirational markets. The desire to spend on hospitality has gone up the ladder, and people do not want to give that up,” Hargreaves said.
She said guests continue to absorb prices increases in most markets.
“Not in all markets, but nominal revenue per available room is up,” she added.
Rasin said events are continuing to boost occupancy.
“It was a fantastic events year in 2024, but despite all those [grandstand] events, I think 2025 will do better,” he said, adding that guests now travel to events, rather than awaiting those events to roll around to their home cities.
Lassman said the U.K. will always be a key market for events, concerts and sports.
“Business travel? Let’s see what this year brings,” he said.
He said what worried him, as it did for Pandox’s Rasin, was that regional issues become, for all the wrong reasons, global ones.
Hargreaves said two things worried her.
“From a business perspective, America; from a personal perspective, America,” she said.