Signals, Scenarios, and Strategy: Preparing Hotels for the Impact of Macro Volatility

From geopolitical uncertainty through to macroeconomic shocks, unexpected costs and an increasing tax burden, the UK hotel market has proved relatively resilient through a challenging period, but with volatility here to stay there is an expectation of increasingly divergent operating and investment outcomes.

To help set a course through these uncertain waters, Leumi UK and JLL recently organised an industry roundtable bringing together senior leaders from around the sector including owners, investors, operators, and major brands. The objective of the discussion was to identify the strategies and approaches needed to navigate the current macro volatility, and to capitalise on the clear opportunities that remain in the sector.

Here at Leumi UK we provide financing across the cycle, from developments and value-add projects through to acquisitions, refinancings and portfolio transactions, so we see first-hand both the challenges the industry is facing, and the strategies that are driving growth.

It is clear that we are now operating in a structurally changed environment where volatility is the new normal. Energy has evolved from being a P&L item to a critical risk factor, while labour costs have also increased significantly, as has the cost of capital. The net result of these shifts is a narrower window for success.

There was agreement in the room that the market is unlikely to provide a helping hand in the near-term, and that as a result any growth will have to be operationally driven. That means delivering on the ground day in day out, sweating assets, and driving ancillary revenues.

At a fundamental level, safeguarding the customer experience and quality of an asset via a well thought through, targeted capex programme is essential; a hotel’s reputation has never been more important, and can be a key differentiator. Similarly, having a comprehensive, top to bottom understanding of how an asset is performing, down to the individual data point, is crucial.

Another key initial exam question for everyone in the industry is how to find cost savings, and while many of the easy-wins have been implemented, there remains scope to go further. For example, at the budget end of the spectrum, increased automation during the check-in and check-out process is a no brainer, while businesses with larger portfolios can secure savings by optimising their procurement processes.

More broadly though, it is clear from the discussion that the most innovative businesses in the sector are also exploring more creative ways to drive performance.

First of all, there is clear scope for AI to play an important role in driving efficiencies – while automated chatbots and back-office tools have been in place for some time, one key area of interest is AI-facilitated direct booking, where consumers and businesses would book directly from a LLM platform, rather than via one of the main aggregation platforms. Given the high commission rates on guest bookings delivered by these platforms, it is hoped that a change in the distribution model will also re-shape the current commission model.

The other side of the coin is maximising ancillary income, and finding ways to drive revenue while optimising room pricing. In this context, Wellness represents a significant opportunity. For premium hotels, a well operated, fully rounded wellness proposition can drive pricing and loyalty. In a market where room pricing might not rise significantly in the near term, having a fully-rounded and immersive experiential offer featuring the likes of treatments, a range of swimming pools, and broader celebratory packages can make all the difference.

Another source of growth is events. Across the UK, assets that are well positioned in markets with strong events calendars, particularly concerts and major sporting events, are seeing outsized year-on-year growth, and with touring now many artists’ primary revenue source, this is only set to increase over the coming years.

For all the talk of challenges, after a fall in investment volumes in 2025, the UK hotels market has remained remarkably resilient so far this year. We saw a significant increase in volumes in the first half, driven by big-box trades in London. The expectation is for more broad-based transactional activity across the country in the second half, with more portfolio deals coming through, and we’re seeing an increase in the number of larger regional deals, including over £50m. There also remains a significant pool of capital looking to invest into the sector, led by private investors seeking direct exposure to hard assets.

To conclude then, it is clear that the most accomplished operators, brands, and investors are not just comfortable trading through volatility, they welcome the opportunities that arise from this type of environment. There will undoubtedly be winners and losers, but with the right partners and strategies in place, there remains a path to driving growth.