UK Hotels Sector 2026: Renovations, AI and Experience‑Led Stays

Market snapshot: A positive 2025 sets the stage for 2026

2025 was a positive year for the UK hotels sector. Savills’ indicates that total 2025 investment in the UK Hotels sector is approximately £5.0 billion, with Q4 investment volumes exceeding £2.0 billion, and London having its strongest year since 2018.¹ However, operating profits remained squeezed, with increases to National Insurance Contributions and the National Minimum Wage, outlined in the Autumn Budget 2024, driving higher operating costs. That said, many resilient operators mitigated these pressures through disciplined revenue management and productivity initiatives.

We, at Charles Russell Speechlys, also had a positive year in this sector, advising, for example, the Room00 Group on King Street’s €400 Million investment, which will support Room00’s pan-European expansion strategy. We also launched a thought-leadership campaign, “From Check-in to Check-out: Investing in Hotels for Family Offices,” offering family offices invaluable insights and strategies to help them navigate the multifaceted UK hotels industry. Our expertise in the real estate investment market was further bolstered by the addition of Ed Morgan, as a Partner in our Corporate team. Ed has specialist expertise in real estate and funds and is highly regarded for his work with indirect real estate structures, investment funds, joint ventures, management arrangements for property investment and development, investment and restructuring, private M&A and real estate acquisitions and disposals.

Policy & cost pressures to watch in 2026

2026 will see further cost pressures coming in the form of the revaluation of business rates in April 2026, which will impact hotels considerably, given their substantial property footprints and prime locations. There is however meaningful structural support for hospitality within the reforms. The business rates reforms will:

• introduce permanently lower multipliers for retail, hospitality and leisure properties with a rateable value (RV) under £500,000 from April 2026 to level the playing field for the high street;
• introduce a higher multiplier on properties with an RV of £500,000 and above from April 2026, this includes large retailers, hospitality businesses, warehouses and the bigger supermarkets;
• provide support for retail, hospitality and leisure properties in the interim period leading up to the new permanent multiplier by providing 40% relief (down from 75%) to businesses on their rates bill in 2025/26, up to a cash cap of £110,000 per business; and
• protect the smallest properties by freezing the small business multiplier in 2025/26 and protecting over a million properties from inflationary bill increases.

The resultant increase in costs for hotels falling within the higher multiplier, will require active planning for businesses looking to invest and expand their property portfolios.

Employment Rights Act 2025: Phased changes for hospitality

In addition, the much-anticipated Employment Rights Bill has now received Royal Assent (as the Employment Rights Act 2025) and key measures are scheduled to phase in through 2026 and 2027. The Employment Rights Act is set to bring significant changes to the UK hotels sector, known for its high staff turnover and flexible employment contracts.

Demand outlook: International, domestic and events support

On the flip side, demand is expected to remain well-supported, with a mix of international and domestic visitors and event and conferences supporting this. In its 2026 Hotels Forecast, PwC points to modest nominal growth in 2026, with London RevPAR projected to rise by about 1.8%, driven by an occupancy increase of 1.7%. PwC also forecasts c.1.5% RevPAR growth across the UK regions, supported by an expected 1.2% occupancy uplift.²

UK hotels M&A 2026: Constructive optimism

With these dynamics in mind, we approach the 2026 M&A market in this sector with constructive optimism. Whilst we expect to see no let-up in private capital investment, ESG and diversification drivers - which we touched on at the start of 2025 - we’re expecting the following three themes to be at the forefront this year: renovation vs redevelopment, artificial intelligence moving from pilot to utility (and catalysing transactions in adjacent hospitality tech), and shifting consumer demand to flexible, lifestyle and experience-led stays, something which we’re seeing mirrored in other sectors such as retail.

Renovations persist

We found that there was a strong focus on renovation vs redevelopment throughout 2025, with the Labour Government’s more relaxed, pro-business approach to planning fuelling the debate. Private capital continued to play a leading role in repositioning assets, with notable high ‑ end London reopenings underscoring investor appetite to curate historic buildings into contemporary hotels.

We expect a continued focus on renovation and repurposing in 2026, not least because retrofit can often deliver more quickly than a full redevelopment, reduces exposure to inflation-sensitive materials by retaining structure and façade, and materially lowers embodied carbon, all while protecting heritage value. That said, discovery risks in existing fabric remain and should be managed through robust surveys and sensible contingencies. PwC expects conversions, including office-to-hotel and retail-to-hotel, to remain a meaningful delivery route where planning, heritage and configuration align. Unlike the broader office to residential permitted development regime, Class C1 hotel use typically requires full planning consent; even so, a number of local authorities remain supportive of hotel reuse in appropriate locations. A prominent example of this trend is the conversion of the Custom House building on Lower Thames Street, London – formerly an office used by His Majesty’s Revenue and Customs - into a new luxury 179-room hotel, which received planning approval in September 2025.

However, the decision to renovate vs redevelop will also continue to be a balancing act, with ever-rising construction costs, and sustainability targets being weighed against market positioning and consumer preferences. We cover these key considerations, and the evolving regulatory landscape, further in Building Hotels: A Guide for Family Offices.

Artificial intelligence moves from pilot to utility — and expands the M&A universe

AI is everywhere, and hotels are no exception. AI offers the potential to revolutionise aspects of hotel management, and AI adoption is accelerating across revenue, operations and guest engagement. Hotels are deploying AI in a myriad ways, including to forecast demand, create customised guest experiences through data-driven insights, dynamically price inventory, optimise distribution, automate housekeeping and maintenance scheduling, and enhance direct ‑ booking conversion. Hilton is one example of a hotel group that has fully embraced AI, utilising front-desk and in-room AI-virtual assistants. Smart building systems are also being adopted to improve energy management and cost control, which can also support sustainability strategies. By utilising AI in these ways, hotels can not only enhance customer satisfaction, but obtain a competitive edge in a crowded market, and achieve much needed efficiencies in light of climbing operational costs.

We expect investors will look favourably on hotels that are embracing AI adoption, in a responsible manner. At the same time, hospitality-adjacent ‑ technology providers in revenue management, property management, guest engagement and building ‑ management systems are likely to be increasingly attractive acquisition targets.

With opportunity comes risk, and the rollout of AI-enabled technology in hotels also brings complex legal issues to the forefront, particularly in the area of data protection and cybersecurity. To demystify some of the complex legal issues associated with AI, and help those starting their AI journey, we have published an AI Business Guide.

Guest demand is shifting to flexibility, lifestyle and experience‑led stays

Guests are increasingly choosing flexibility, lifestyle and experience-led stays over one size fits all stays. Experience-led in practice means hotels designing and programming stays around moments guests value, not just the room. In the UK hotels market, this trend is manifesting in three ways. First, curated, locally rooted experiences that differentiate the product and sustain rate, from chef led dining and mixology labs to partnerships with cultural institutions and neighbourhood events, there’s something for every lifestyle. A notable example is The Londoner, Leicester Square, which runs “Londoner Life,” a regular programme of curated events, exhibitions and thought-provoking experiences for guests. Secondly, with wellness treated as a core pillar rather than an add on, with hotels building spas, recovery therapies, outdoor programming and sleep optimisation into an integral part of the stay. Thirdly, activated public spaces that double as “third places” for work, socialising and entertainment, often wi

We expect this trend will see investors focus on assets and platforms that can best take advantage, including those that can flex between leisure, corporate and group segments, with reconfigurable room stock, activated public spaces and strong local partnerships.

UK hotels: Outlook and momentum

The UK remains a beacon of hospitality, continuing to draw in both international and domestic travellers and investment. Liquidity in single asset trades, the prospect of renewed portfolio activity and the continued influx of private capital investment should support an active M&A and investment market. Lifestyle and experience ‑ led hotels are at the centre of this momentum, and we step into 2026 optimistic and keen to join the experience-led trend!

¹ Savills UK | UK hotel investment reaches £5.0 billion in 2025
² Hotels Forecast 2025 - 2026: Selective resilience - PwC UK