Hotel GOP Margins Stagnate as Rising Costs Offset RevPAR Gains

Rising operating costs are absorbing hotel top-line revenue gains, leaving gross operating profit margins flat or only slightly improved despite strong average daily rate and RevPAR growth across major markets [2]. Hoteliers have used pricing power to pass higher operating expenses directly to guests, but escalating overhead costs continue to prevent top-line surges from translating into broader bottom-line profitability [2].

Why did London gross operating profit margins stall despite an 8% ADR spike?

Hotel profit margins in London failed to grow because rising operational expenses completely absorbed top-line pricing gains [2]. Hotel Owner reported from the latest RSM UK Hotels Tracker that London hoteliers lifted average daily rates by 8% year-on-year in June, rising from £243.03 to £262.08 [2]. Despite this pricing jump, London gross operating profit margins remained completely unchanged year-on-year at 46.7% [2].

Across the rest of the UK, average daily rates rose from £137.77 to £144.91 [2]. Overall UK hotel gross operating profit margins saw only a marginal increase, moving from 41.8% to 42.2% [2]. Hoteliers relied on robust leisure demand and warm summer weather to transfer cost burdens to guests, but operational overhead limited margin expansion [2].

How are occupancy shifts impacting hotel profitability?

Occupancy contractions erode the financial benefits of room rate hikes, complicating efforts to expand profit margins against fixed and variable cost pressures [2]. In London, hotel occupancy fell from 87.5% to 84.9% year-on-year in June, dampening the revenue advantages created by higher rates [2]. UK-wide occupancy remained flat at 83% over the same timeframe [2].

RSM UK chief economist Thomas Pugh stated that stable consumer demand following initial energy price shocks allowed operators to pass higher operating costs through room rates [2]. However, Chris Tate, head of hotels at RSM UK, warned that operators cannot rely indefinitely on raising prices, noting that ever-increasing room rates are not sustainable in the long term [2].

How are extended-stay properties performing amid broader demand trends?

Extended-stay properties in the United States recorded strong top-line revenue momentum across the second quarter of 2026, generating higher guest volume to offset operating overhead [1]. Asian Hospitality reported data from The Highland Group’s First Half Year 2026 report showing extended-stay room revenue expanded 9% in Q2, marking its largest quarterly increase in more than three years [1].

Extended-stay RevPAR increased 4.2%, recording its best gain in 13 quarters, while guest demand grew 6% [1]. Extended-stay average daily rates grew 2.8%, which was the largest increase since the third quarter of 2023 [1]. By June, extended-stay demand climbed 5.8% year-on-year, lifted by events including the FIFA World Cup [1].

What role does room supply play in defending operator performance?

Constrained construction pipelines help operating properties maintain solid occupancy benchmarks, supporting bottom-line performance amid ongoing expense inflation [1]. According to The Highland Group, extended-stay rooms under construction fell 30% year-on-year to 27,553 rooms at the close of Q2 2026 [1]. This construction total is just over half the level recorded two years prior and represents 4.3% of the existing 645,000-room supply [1].

Higher interest rates, elevated construction costs, and tariff uncertainty have tightened hotel financing conditions [1]. As national supply growth is expected to hit 4.5% in 2026, extended-stay occupancy reached 77.3% in Q2, beating comparable hotel classes by 11.6 percentage points [1]. Mid-price extended-stay RevPAR reached 107% of the comparable-class benchmark in Q2 2026, up from 92% in Q2 2019 [1].