Operators prioritise margins and diversification as profitability pressures influence hotel strategy. / Credit: Roberto La Rosa via Shutterstock
Executives and investors in the hospitality sector continue to view London as Europe’s most attractive city for hotel investment, while Edinburgh holds its ground as the leading regional UK destination, according to Deloitte’s 2025 European Hotel Industry and Investment survey.
But despite strong optimism, concerns around profitability are mounting, with many industry leaders shifting focus to improving returns.
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Strong long‑term sentiment, but profit doubts grow
Eighty-four percent of surveyed hospitality leaders say they are optimistic about the long-term future of the European and UK hotel market, with 79 percent expecting meaningful growth in hotel investment over the next five years.
Yet when it comes to profitability, confidence is more fragile: only 47 percent of respondents believe hotels in these markets will become more profitable in the next half-decade.
Managing or boosting profitability has now become the top short-term business priority, with 84 percent citing it as a key concern—well ahead of managing cash flow (68 percent) and inflationary pressure (64 percent).
Competition for deals is heating up, driving diversification
Three-quarters (74 percent) of survey participants expect competition for hotel acquisitions to intensify in 2026.
To protect margins and enhance returns, many operators are diversifying. According to the report, 42 percent of firms say that margin pressure and return-on-investment concerns are spurring their diversification strategies.
Meanwhile, 35 percent point to shifting consumer demand for more personalised and experiential stays. As part of this, 27 percent of companies have already launched new hotel concepts, and 24 percent have added brands across different price tiers.
Among asset classes, luxury hotels remain the most attractive for future investment (39 percent), followed by upper-upscale and economy segments (each 16 percent). This suggests investors are sharpening their focus on either premium or value-driven models, rather than the squeezed “middle market.”
London and Edinburgh retain appeal amid shifting geographical rankings
London has been ranked the top European city for hotel investment for the third year in a row, according to Deloitte’s survey.
On the regional side, Edinburgh continues to lead as the most attractive UK city for hotel investment—for the fifth successive year—chosen by 54 percent of respondents.
Elsewhere in Europe, Madrid remains in second place after London, while Athens has climbed into third, rising seven places compared to the previous year.
Meanwhile, major markets such as Rome and Milan have slipped in investor rankings, while Warsaw and Munich have each moved up.
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