Navigating uncertainty while redesigning value

By 2026, the UK hospitality sector will not be defined by a single trend, technology or asset class. Instead, success will depend on how effectively operators navigate sustained uncertainty while extracting value from every square metre, every data point, and every guest interaction. Agility, rather than scale alone, will determine performance, with adaptable operating models, diversified income streams, and proactive responses to regulatory and market change separating winners from the rest.

With cost inflation embedded and pricing power constrained, profitability can no longer rely solely on room rates. Operators are increasingly focused on technology, data-led decision-making and maximising revenue per available guest to protect margins and support resilient P&Ls.

While the operating environment remains complex, the year ahead presents a significant opportunity for the sector. Those willing to innovate, recalibrate, and invest strategically will be best placed to create sustainable long-term value in an evolving hospitality landscape.

  • Regulation and geopolitics: a permanent state of uncertainty

Uncertainty is no longer cyclical; it is structural. By 2026, businesses will operate against a backdrop of sustained geopolitical instability affecting travel patterns, labour mobility, and supply chains, alongside intensifying regulatory pressure.

Key developments include evolving planning policy, increased regulation under the Building Safety Act 2022 and a fundamental overhaul of the short-term rental sector through the Renters’ Rights Act 2025, a proposed new use class, and a registration schemes. Employment law reform under the Employment Rights Bill 2025 will materially reshape workforce management, including the introduction of unfair dismissal rights after six months.

Cost pressures will accelerate further. The 2025 Autumn Budget included multiple increases, most notably the rise in the minimum wage for 18- to 20-year-olds to £10 per hour from April 2026. Given the sector’s reliance on this demographic, wage inflation will cascade throughout the workforce.

While room rates can flex, pricing power remains constrained by consumer sensitivity, online travel agency competition, and seasonality. Rising costs are therefore often absorbed by margins rather than passed on. Successful operators are no longer waiting for clarity; they are assuming volatility, building flexible operating models, shortening investment horizons, and diversifying revenue streams to protect value.

  • Artificial Intelligence reshaping hospitality

AI is rapidly becoming a strategic enabler rather than a peripheral tool. By 2026, it will underpin more personalised guest experiences, optimise operations, unlock new revenue streams, and enhance asset performance. Those who hesitate to adopt it will fall behind quickly.

Operationally, AI enables centralisation and automation, reducing staffing requirements without compromising service quality. AI-driven revenue management, finance automation, and customer service platforms are already improving profitability and efficiency.

Guest engagement is being transformed through hyper-personalisation: real-time, data-driven tailoring of content, services, and communications based on individual behaviour and preferences. This improves satisfaction, increases ancillary spend, and enhances human interaction by equipping staff with meaningful insights. The ‘wow’ factor will come from artful attentiveness, for example offering a ten-year-old a complimentary ice cream or sending a hot tea to a guest who is battling a cold in their room. These are thoughtful, unprompted gestures that build loyalty and elevate the hotel, the brand, and the service professional.

AI-powered communication tools increasingly handle routine enquiries, delivering immediate responses while escalating complex issues to human teams. The challenge lies in maintaining authenticity. The most effective operators integrate technology invisibly, redistributing staff to remove friction and enhance service rather than replacing human connection. The future lies in high-touch hospitality enabled by high-intelligence systems.

  • Experiential travel

Experiential travel has become a defining force across the sector. This shift is not about luxury or scale, but authenticity and a genuine sense of welcome. Guests increasingly seek experiences rooted in place, with spaces that reflect local culture and community.

The human touch now extends beyond traditional service into design, storytelling, and community engagement. Even budget hotels can deliver memorable stays through strong narratives, thoughtful design, and locally reflective teams.

This mirrors broader behavioural change. Younger travellers prioritise experiences over possessions, while older travellers increasingly pursue activity-led and “bucket list” journeys. Offering a room alone is no longer sufficient. Guests want to be received, welcomed, and immersed in environments that feel human and meaningful.

  • Health and wellbeing

Wellness tourism now exceeds $1 trillion globally and continues to grow faster than overall travel, according to the Global Wellness Institute. Health and wellbeing are no longer niche add-ons; they are core drivers of travel decisions.

Demand is expanding for experiences integrating physical health, mental restoration, and preventive care, including therapeutic retreats, personalised wellness programmes, and curated medical check-ups. Culinary wellness rooted in authentic global traditions is also reshaping F&B strategies.

Growth is driven by increased awareness of lifestyle-related health risks, the rise of remote working enabling longer stays, and a willingness to invest in travel that delivers measurable benefits. Providers that successfully combine clinical credibility with high-quality hospitality are redefining how travel is positioned and delivered.

  • Hypermixity and hybrid hospitality

Flexibility is now fundamental. The future of hospitality lies in hypermixity: assets accommodating living, working, socialising, and leisure within a single ecosystem. Hybrid models combining hotels, co-living, co-working, branded residences, and short-term rentals are becoming mainstream.

Operators such as Zoku and The Social Hub demonstrate how hybrid formats maximise utilisation, diversify income, and enhance resilience. Flexible office space generates revenue from non-guests while strengthening community engagement.

Successfully monetised hybrid assets encourage longer stays, repeat visits, and higher spend per guest. They reduce obsolescence risk and embed hospitality assets within their local environment, ensuring relevance as urban patterns, technology, and consumer behaviour evolve.

  • From RevPAR to TrevPAR to RevPAG

Traditional performance metrics are no longer sufficient. RevPAG (Revenue per Available Guest) is emerging as a critical measure, shifting focus from rooms to the full guest journey.

By tracking spending across dining, spa, activities, retail, and other touchpoints, RevPAG provides a holistic view of guest value. It allows operators to identify high-yield opportunities, optimise underperforming services, and allocate resources more effectively.

Crucially, RevPAG aligns profitability with engagement and satisfaction, enhances resilience against seasonality and market shifts, and can materially improve asset valuation by demonstrating diversified income streams.

  • Repositioning driving hospitality transactions

In the current hospitality transactions environment, a growing cohort of buyers are underwriting acquisitions of undercapitalised hospitality assets based on a forward-looking business plan rather than in-place performance. These investors are targeting properties with historically low capital expenditure, where value can be unlocked through a defined capex program, brand repositioning, and operational improvements. The investment thesis typically assumes a near-term stabilisation following renovation and rebranding, at which point the asset can be exited at a materially improved valuation driven by normalised cash flows and institutional-quality fundamentals.

  • Liquidity

Liquidity in UK hospitality remains strong but highly selective. Prime London and Edinburgh assets continue to attract competitive financing, driven by international demand, constrained supply, and credible capex strategies.

Regional markets face wider pricing, tighter loan-to-value ratios, and more conservative covenants. Sponsor quality is increasingly decisive. Established operators with transparent reporting and liquidity buffers secure superior terms, while weaker sponsors face longer processes and stricter conditions.

Performance metrics alone are no longer decisive; governance, revenue mix, and sponsor credibility now shape access to capital.

  • Adaptive reuse

Adaptive reuse is reshaping hospitality development, with obsolete offices, industrial assets, and former prisons increasingly converted into hotels or mixed-use schemes. Councils focused on regeneration recognise their economic and cultural value.

Projects such as The Derby London City, Malmaison Oxford, and the Raffles Old War Office exemplify the trend. Adaptive reuse reduces embodied carbon, mitigates obsolescence, and can offer cost efficiencies, although planning, structural constraints, and capex remain challenges.

Retrofitting enables upgrades in energy efficiency, functionality, and regulatory compliance, making adaptive reuse a strategic and sustainable route to growth.

  • ESG as a decisive investment factor

Environmental, Social and Governance considerations are now central to hospitality investment. By 2026, compliance with regimes such as the EU’s Corporate Sustainability Reporting Directive, the UK Sustainability Disclosure Requirements, and TCFD-aligned reporting is directly influencing valuation, due diligence, and financing terms.

Operators and asset owners are embedding ESG metrics into operations and reporting frameworks, recognising that sustainability performance is increasingly linked to capital access, regulatory risk management, and long-term value creation.

If you have questions on any of the topics mentioned above, please contact Nadia Milligan.