Record supply, rising rates: London’s hotel paradox explained

London now has more hotel rooms than ever before, yet average prices continue to climb. Industry data from STR shows a record supply of over 156,000 rooms, but average daily rates have risen by nearly 6% year-on-year. Why is increased capacity not bringing down costs for travellers?

Record room numbers but no price relief

According to the latest figures from STR, London’s hotel inventory reached an all-time high of 156,000 rooms in 2024, surpassing the previous record set in 2019. Major new openings include the Raffles London at the Old War Office, the Peninsula London in Belgravia, and several extended-stay properties in the Docklands and Stratford areas.

Despite this influx, average daily rates (ADR) have risen to £210, up from £198 in 2023. Revenue per available room (RevPAR) also increased, driven by occupancy levels that remained above 80% for most of the year. This suggests that demand growth has kept pace with or exceeded the supply expansion.

Unlike other European capitals such as Paris or Berlin, which saw price stagnation or slight declines in 2024, London’s pricing power appears resilient. Analysts at STR note that the capital’s unique combination of business travel, conferences, and leisure tourism (both domestic and international) continues to absorb new room supply quickly.

Why supply growth hasn’t lowered prices

Several factors explain why record supply has failed to trigger a price correction. First, operating costs for hotels have surged. Labour shortages, higher energy bills, and increased food and beverage costs have forced operators to maintain higher room rates just to protect margins.

Second, many new hotels are in the luxury or upscale segment. The vast majority of recent openings have been four- or five-star properties, targeting high-spending international visitors. According to VisitBritain, the average spend per visit from US and Middle Eastern tourists rose sharply in 2024, partly driven by favourable exchange rates for the dollar and Gulf currencies.

Third, regulatory changes have added costs. The introduction of the short-term rental registration scheme in London and stricter planning rules for new hotels have limited the supply of budget accommodation. The result is a market that is increasingly bifurcated: very expensive hotels at the top and a shrinking pool of affordable options.

• Luxury segment: six new five-star hotels opened in 2024, with average rates above £450 per night.
• Midscale segment: minimal growth, with many existing properties upgrading to premium brands.
• Budget segment: net room decline due to conversions of hostels and budget hotels to residential or upscale use.

What this means for the British traveller

For UK residents looking to stay in London for a weekend break or business trip, the outlook is challenging. Average rates of £210 per night can easily exceed £300 for a centrally located hotel during peak periods like Wimbledon or the Notting Hill Carnival. Even mid-range hotels in zones 2 and 3 now command rates of £150-£180.

One alternative that has grown in popularity is serviced apartments, which offer more space and kitchen facilities for extended stays. According to the UK Short Term Accommodation Association, supply of serviced apartments in London grew by 12% in 2024, with average nightly rates closer to £170. However, these too have been affected by similar cost pressures.

Another option is staying further out in zones 4-6 or in nearby commuter towns like Reading, Slough, or Watford, and commuting in by train. While this can cut accommodation costs by 30-40%, it adds travel time and expense. The Citizens Advice service advises travellers to check cancellation policies carefully, as many hotels now offer non-refundable rates as standard.

Outlook: will rates ever ease?

The forward pipeline for London hotel supply remains strong, with over 10,000 rooms under construction and a further 20,000 planned. However, analysts caution that much of this is in the upscale category. A report from Deloitte (published in late 2024) noted that while supply growth will continue, it is unlikely to outpace demand driven by events like the 2025 Women’s Rugby World Cup and ongoing investment in business infrastructure.

There are some signs that price growth is moderating. STR data for the first quarter of 2025 showed ADR growth slowing to 3.5%, compared with 6% in 2024. If occupancy begins to dip, hoteliers may need to offer more competitive pricing to fill rooms. However, given the structural cost increases, a return to pre-pandemic price levels is unlikely without a major economic downturn.

The London hotel market is currently a paradox: more rooms than ever, yet prices that are stretching the budgets of many visitors. For the foreseeable future, the capital seems likely to remain one of the most expensive hotel destinations in Europe.

Sources

• STR – London Hotel Performance Data
• VisitBritain – Inbound Tourism Statistics
• HotelsPedia – HotelsPedia’s London hotel directory
• GOV.UK – UK Tourism Statistics
• OECD – Tourism Policy Review
• Citizens Advice – Hotel and Accommodation Rights

Sources checked 2026-06-29.