Hospitality sector market overview

Detailed market analysis

Employment in the sector reached record levels with 2.8 million jobs as of June 2024, making hospitality one of the largest employment sectors in the UK.

Investment performance

The hospitality sector has seen significant investment activity in recent years. UK hotel investment volumes reached nearly £4 billion in the first half of 2024, representing a 210% increase from the previous year.

Private equity remains the largest source of equity capital for UK hotel acquisitions in 2025, with 67% of total investments directed towards upper-upscale properties, reflecting growing demand for luxury hospitality experiences.

Growth opportunities

Regional markets outside London are showing strong performance, with Northern Ireland experiencing particularly robust growth. International tourism is forecast to reach 99% of pre-COVID levels, driven by overseas visitors taking advantage of the weaker pound.

Emerging growth areas include:

• Contract catering with significant untapped potential in institutional food operations
• Wellness tourism and fitness-focused resorts
• Sustainable and locally-sourced dining experiences
• Chinese outbound tourism as travel normalises

Sector breakdown

The hospitality sector comprises several distinct subsectors, each with unique characteristics and growth trajectories.

Restaurants and foodservice

This is the largest segment, accounting for 52.41% of sector revenue in 2024. Consumer preferences are shifting towards environmentally conscious dining, with 49% of consumers willing to pay a premium for locally-sourced ingredients in 2024, up from 42% in 2023.

Hotels and accommodation

The UK hotel industry is valued at £27.5 billion in 2025 with 9,846 businesses (2025 industry estimates). One 2025 industry estimate puts revenue growth at a CAGR of 16.0% over the previous five years. UK hotel room supply has grown by 1.1% year-to-date, with demand for rooms sold increasing 0.6% year-on-year.

Pubs and bars

The pub sector has experienced long-term consolidation, with numbers declining from 60,800 in 2000 to approximately 45,000 in 2024. Despite this trend, pubs remain a vital part of the UK hospitality landscape and local communities.

Contract catering

This is a high-growth segment with significant untapped potential. Only half of potential UK institutional food operations are currently outsourced, providing substantial runway for specialist caterers serving hospitals, universities, defence sites, and corporate clients.

Market challenges

The hospitality sector faces several significant headwinds that affect profitability and operations.

Labour costs and availability

Rising labour costs represent a major challenge. The National Living Wage is £12.71 per hour as of April 2026 (increased from £12.21 in April 2025). Payroll already represents 35% of hotel operating costs.

Higher employer National Insurance contributions announced in the 2024 Budget add an estimated £3.4 billion in costs across the sector. Brexit-driven visa rules raised the skilled-worker salary threshold to £38,700 in April 2024 (increased to £41,700 from 22 July 2025), well above typical front-of-house wages, exacerbating workforce shortages.

Operating margins

The sector operates on thin margins, making it particularly vulnerable to cost increases. The combination of higher wages, increased National Insurance, and elevated energy and food costs creates significant pressure on profitability.

Recruitment and retention

The hospitality sector consistently has higher vacancy rates than the economy overall (3.6 per 100 workers vs 2.6 economy-wide in September 2024). Annual workforce turnover of 52% is 48% higher than pre-COVID levels, creating ongoing recruitment and training costs.

Investment outlook

Despite operational challenges, investor confidence in the UK hospitality sector remains strong, with opportunities emerging across various segments and regions.

Private equity activity

Private equity investment in hospitality saw a ten percentage point increase in early 2025 compared to the previous year, signalling growing expected M&A activity. Investors are focusing on sustainability, digital innovation, and operational improvements to drive long-term growth.

Strategic partnerships

39% of hospitality executives expect to partner with other organisations both in and outside the sector in 2025, compared to 19% a year ago. This reflects the need to pool resources, share expertise, and tap into new markets.

Regional opportunities

Regional markets are outperforming London, with Northern Ireland showing particularly strong growth driven by Belfast's expanding conference centre, infrastructure investment, and improved air connectivity.

Luxury segment

The upper-upscale and luxury segments continue to attract the majority of investment capital, with 67% of total investments in 2024 directed towards higher-end properties.

Consolidation potential

The challenging cost environment is expected to create consolidation opportunities for well-capitalised operators looking to strengthen market position through strategic acquisitions of struggling competitors.

Industry resources and support

Hospitality businesses can access support from trade associations, regulatory bodies, and industry organisations: