UK hotel profits squeezed by summer air
Strong summer demand and higher room rates were offset by rising utility expenses from increased air conditioning use, causing UK hotel profit margins to
Rising utility costs driven by summer air conditioning use squeezed UK hotel profit margins in July 2026, despite strong consumer demand and higher room rates. The data comes from RSM UK's analysis of recent Hotstats figures.
Utility expenses per occupied room rose nationally from £8.45 in July 2025 to £9.15 in July 2026. The increase was more pronounced in London, where costs jumped from £8.91 to £10.10. Chris Tate, partner and head of hotels at RSM UK, linked the rise directly to consumer behavior during the heatwave. "The hotter weather has also meant greater use of aircon in hotel rooms as consumers tried to keep cool, leading to higher utility costs to eat into profit margins," he said.
Financial performance across key metrics
While costs rose, hotels managed to increase their average daily rates. The UK-wide average daily rate (ADR) for occupied rooms grew by 4%, from £176.29 to £182.47. London's ADR increased from £264.34 to £274.40. Revenue per available room (RevPAR) also saw modest gains, rising from £152.55 to £155.89 across the UK and from £238.15 to £242.57 in London.
However, occupancy rates dipped slightly year-on-year. UK occupancy fell from 86.5% to 85.4%, while London occupancy decreased from 90.1% to 88.4%. The combination of higher costs and slightly lower occupancy impacted profitability.
Profit margins contract under cost pressure
The net result was a contraction in gross operating profit margins. For UK hotels, profits dropped from 43.9% of total revenue to 43%. The decline was sharper in London, where margins fell from 49.2% to 47.7%. Tate noted that simply charging higher rates is no longer sufficient to protect profits. He urged hoteliers to explore other cost-cutting initiatives and efficiency measures.
Economic outlook and future challenges
RSM UK's chief economist, Thomas Pugh, provided a cautious outlook for the coming months. He expects economic growth to slow heading into winter. Pugh forecasts inflation will peak close to 4% in the fourth quarter of 2026 and remain near that level into the first quarter of 2027. He attributes this to higher energy prices pushing up costs for airfares, manufactured goods, and food.
This persistent inflation, Pugh stated, will prevent a return to target levels until 2028. Combined with the prospect of a significant tax-raising budget in October, these factors are likely to slow consumption growth dramatically. Pugh predicts growth will slow to around 0.1% in the fourth quarter, compared to an average of 0.5% per quarter in the first half of the year.
Chris Tate acknowledged the current strength in consumer confidence but expressed concern that the upcoming budget could reverse progress. The industry faces a period where managing operational costs will be as critical as maintaining demand.
