The hospitality sector has repeatedly demonstrated resilience and innovation. 2024 was dominated by high interest rates and soaring fuel costs exacerbated by geopolitical conflicts. However, the sector is rebounding from COVID-related disruptions and inflation. With interest rates declining and incredible Artificial Intelligence (AI) advancements enabling cost reductions and operational efficiencies, linking sustainability to growth and enhanced guest experiences, the sector is swiftly adapting to new norms and is set up for what will be a formidable 2025.
One thing that remains the same and must continually be at the top of every hotelier’s list is, “How can I ensure a memorable, seamless, guest experience?”.
Whilst not without its challenges, 2025 will be an incredible year for our sector. In no particular order, here are my top ten predictions for our adaptable and remarkable sector:
Growth sectors
- Short-term rentals (STRs)
In a post-pandemic world, digital nomads are driving demand for STRs designed with smaller units and larger communal spaces, combining private living with social and flexible working options. Leisure travellers also value the home-like feel and kitchen facilities of STRs, with optional add-on services like housekeeping, childcare, and grocery delivery.
The UK & Ireland STR market offers significant growth potential, with hotspots like London, Manchester, and Dublin. STRs typically generate higher revenues than traditional hotel rooms as guests tend to stay longer and the operating costs are lower than full-service hotels.
The STR market is being shaped by independent operators who are not locked into rolling out brand standards, and who can offer unique experiences. For example, Urban Rest is rapidly expanding in the UK&I (from Australia and NZ) and focuses on locations that offer guests a variety of amenities such as co-working areas, residents’ lounge areas, and private dining rooms.
- Branded residences
The branded residences sector is set for rapid growth, driven by its resilience during the pandemic (owners continued paying fees), surging demand from high-net-worth buyers seeking hassle-free luxury living, and developers reaping significant profits. Investor interest has broadened to include institutional investors, sovereign wealth funds, and individual developers, intensifying competition.
With branded residence developments pushing boundaries for adventurous locations, and unique and immersive experiences, the sector has seen a plethora of market entrants, including motoring brands (e.g. Aston Martin, Porche, and Bentley), fashion brands (e.g. Fendi, Missoni, and Bvlgari), restaurant brands (e.g. Nobu and Hard Rock). With established international hospitality giants who have been in the game from the outset (including Four Seasons who launched the modern concept in 1985), differentiation and tailored strategies are critical to stand out.
With hotels taking an average of three to four years to stabilise, standalone branded residences are on the rise, offering monetisation during development (subject to local law requirements e.g. Dubai’s escrow law). An exciting sector to watch!
- Focused service hotels
Focused service hotels have always been and will continue to be popular. They are expected to grow in secondary cities, due to their ability to meet the evolving needs of cost-conscious and convenience-seeking travellers looking for affordable but reliable stays.
Developers are seizing this opportunity, recognising the segment’s profitability, resilience, and adaptability. These hotels require less capital to build and operate than full-service properties, as they are often smaller in size and do not include expansive facilities like multiple restaurants or event spaces. By reducing operational complexities, operators can focus on delivering high-demand amenities and maintain strong profitability.
International hospitality brands are accelerating their expansion plans for the focused service segment, with Marriott expanding its Courtyard and Fairfield by Marriott properties and Accor growing its Ibis, Ibis Style and Ibis Budget properties.
Increased use of multi-faceted AI
An increasing number of hoteliers are leveraging AI to address challenges, not to replace staff interactions but to enhance them. AI offers creative potential, especially in sustainability initiatives. While investments in hardware, software, networking, and cloud computing are necessary, the benefits are immense, including:
- AI driving sustainability
The sector is working hard towards adopting renewable energy sources and smart systems for climate control and lighting to reduce their environmental footprint. Local sourcing, waste reduction, and eco-friendly amenities are proactively being sourced to attract environmentally conscious travellers and corporate travellers (some of whom will only stay in properties that have eco-friendly credentials) in addition to tapping into automation and robotics to help manage resources efficiently, from energy usage to staff allocation, contributing to both operational efficiency and sustainability.
Sustainability is a key area of opportunity for hoteliers as it benefits both hoteliers and environmentally conscious customers. AI can be leveraged to optimise energy consumption such as energy-efficient systems with automatic shut-off and purchasing from local vendors to help reduce carbon footprints.
- Increased integration between Building Management Systems (BMSs) and Property Management Systems (PMSs)
A BMS collects operational data (e.g. HVAC, lighting, maintenance alerts) to optimise energy efficiency, while a PMS manages administrative tasks like maintenance requests. Integrating the two provides real-time insights, enabling AI-powered sustainability to improve energy, water, and waste management without affecting guest experiences.
A BMS feeding data into a PMS enables:
- Automated work orders and notifications, eliminating manual tracking.
- Insights into energy patterns for improved efficiency.
- Enhanced guest experiences through automated maintenance communication.
- Incredible automation
AI offers numerous opportunities to enhance the customer journey. Automated tools like booking confirmation, online check-in, collecting guest feedback, booking spa treatments, ordering room service, AI-powered chatbots which can efficiently handle guest inquiries … the list is endless! AI can reduce guest friction and free up staff to focus on personalised interactions, boosting productivity and service quality.
AI also optimises inventory management, ensuring ideal stock levels, and leverages real-time trends and historical data for better demand forecasting and pricing strategies. Predictive analytics and data-driven personalisation unlock upselling and cross-selling opportunities tailored to guest preferences – data-driven hyper-personalisation could be a game-changer.
The built environment – green is the new gold!
- Sustainability credentials
Developers should increasingly meet ESG standards as guests prioritise eco-friendly solutions. Businesses who fall under the Corporate Sustainability Reporting Directive (CSRD) will be required to make their first CSRD disclosures in their 2025 management report using 2024 data. This includes reporting on their environmental impact (including the impact of corporate travel). Eco-friendly guests are increasingly requesting an ‘ESG receipt’ with details about their carbon footprint with regard to their stay.
Hotels must embrace sustainability in design and refurbishment, incorporating energy-efficient systems, waste reduction, and eco-friendly construction, aligning with consumer and investor priorities.
With regulators pushing for greater transparency in sustainability reporting, hospitality assets should set clear ESG strategies, including benchmarking sustainability KPIs, allowing a hospitality asset to measure ESG data, report on ESG data and then making informed decisions to drive operational efficiencies.
- Adaptive re-use
Repurposing vacant heritage buildings in prime locations is increasingly cost-effective as planning authorities gravitate towards the retention of unused buildings. Adaptive re-use preserves existing elements like walls and foundations, reducing the need for carbon-intensive materials such as concrete and steel – a major win for cutting embedded carbon.
Adapting buildings in underused areas can also reduce new build construction on greenfield land, whilst breathing life into unused buildings, stimulating local economies and revitalising neighbourhoods. With a growing demand from guests for unique experiences and authenticity, adaptive re-use projects often embody these values.
- Circularity
Circularity emphasises reusing and regenerating resources to reduce waste and pollution. Adopting this model can lower a hotel’s environmental impact, optimise costs, and enhance guest experiences.
Key practices include strong recycling programs, donating excess food, replacing single-use items with durable alternatives, and composting organic waste. Procurement policies increasingly prioritise durability, repairability, longevity, and recyclability to minimise waste and reduce operating costs. Partnering with local suppliers further cuts transport emissions and supports communities.
AccorInvest exemplifies circularity, having made it one of their three ‘C’ priorities, along with carbon and certification by using non-toxic products that can be easily dismantled, reused or recycled at the end of their lifespan. They engage with their FF&E suppliers to develop sustainable, flexible, and adaptable furniture that minimises its impact on the environment.
- Increased enforcement by the Environment Agency – The Energy Savings Opportunity Scheme Regulations 2014 (ESOS)
With hospitality assets being energy-intensive and businesses easily falling within scope of ESOS (applying where a business has at least 250 employees, or an annual turnover exceeding £44 million and a balance sheet exceeding £38 million), ESOS presents both a challenge and an opportunity for our sector.
Businesses falling into ESOS are required to carry out comprehensive energy audits every four years to assess their energy consumption across HVAC, lighting, transportation and other categories to identify potential energy-saving measures. However, such measures may require capex (e.g. upgrading HVAC systems or retrofitting buildings with energy-efficient windows).
The Environment Agency has extended the deadline for businesses in scope, to submit their Phase 3 action plans from 5 December 2024 to 5 March 2025. Non-compliance is not an option, with numerous cumulative fixed penalties, e.g. £5,000 for failing to maintain records, £50,000 for failing to undertake an energy audit and another £50,000 for making a false or misleading statement.
Economic pressures – saving the worst till last …
Whilst these points didn’t make it into my top ten, they are important to mention:
Climate-related events and insurance
The increasing frequency and severity of climate disasters are causing tourism revenue losses and property damage. Insurers are raising premiums, tightening terms, increasing deductibles, and reducing coverage in high-risk areas like flood, hurricane, and wildfire zones. This creates challenges for commercial real estate to secure insurance meeting lender requirements, with Southern Florida, vulnerable to hurricanes and rising sea levels, nearing insurability.
The 30 October 2024 Budget
Even before the Budget, our sector faced pressure from rising operating costs and consumer shifts toward value-oriented services. The Budget adds to these challenges with a 7% minimum wage increase, higher taxes (employers’ NIC rates rising from 13.8% to 15%, with the NIC threshold dropping from £9,100 to £5,000), and reduced reliefs (business rates discounts decreasing from 75% to 40% in April 2025).
President Donald Trump’s re-election
The US dollar is expected to strengthen against the pound, raising UK import costs but potentially boosting American tourism to the UK. President Trump’s “America First” stance, including a proposed 10% global import tax and 60% on Chinese goods, could prompt retaliatory tariffs and disrupt global supply chains.
Nadia is passionate about the hospitality sector and has been advising hospitality asset owners, investors and international brands for over 15 years. She has extensive expertise in hotel management and franchise agreements, branded residential development and commercial property, with a particular interest in advising owners and investors of hospitality assets, their landlords and international brands in the amicable resolution of operational and relationship issues.
Prior to joining Keystone Law in September 2024, she held senior in-house positions at InterContinental Hotels Group PLC and Hilton Worldwide, and prior to that worked at Clifford Chance. Nadia also chairs the Legal Committee and sits on the Advisory Board for the Energy & Environment Alliance, a not-for-profit formed by the former CEO of the British Hospitality Association, Ufi Ibrahim, focusing on driving ESG (internationally) into the hospitality sector.
For more information about the topics featured in this article please contact Nadia Milligan.