While the UK hospitality and leisure sector has moved beyond post-pandemic recovery, rising employment costs, margin compression and elevated insolvencies are reshaping the landscape.
Hospitality businesses now face an estimated £3.4bn in additional annual costs, driven by higher wages, National Insurance contributions, business rates and insurance premiums, according to UKHospitality.
At the same time, total company insolvencies in 2025 were close to the highest levels in over a decade. Data from The Insolvency Service shows accommodation and food service businesses accounted for approximately 14% of all insolvencies (behind only construction and wholesale and retail), underscoring continued sector stress.
As we move into 2026, performance will be defined less by top-line growth and more by operational discipline, financial resilience and strategic clarity.
Operators who actively manage margins, optimise cost bases and address capital structures early will outperform. Those who delay may face refinancing pressure, forced disposals or accelerated distress.
Key themes
1) Margin control is now strategic
Although demand is steady, pricing power is constrained as consumers prioritise value. Sentiment in H2 2025 was fragile, with net spend on leisure activities declining year on year, highlighting consumer caution across travel, eating out and entertainment.
With operating cost structurally higher, margin management is no longer just an operational lever but a strategic priority.
2) Capital is available, but selective
Lenders and investors remain active, yet far more disciplined. Sustainable leverage and credible forecasting are now pre-requisites.
The market is increasingly polarised: well-capitalised businesses with strong brand positioning continue to attract support, while smaller or highly-leveraged operators face heightened scrutiny.
3) Transaction activity is more discerning
Following elevated deal volumes in prior years, activity moderated in 2025. Portfolio transactions have slowed, single-asset and value-add opportunities have increased, and turnaround situations are becoming more prevalent, particularly in secondary and regionally exposed assets.
Whilst demand across the sector remains resilient, the environment beneath the surface is much more nuanced. Operators and investors are navigating tighter margins, increased capital scrutiny and growing emphasis on operational performance at asset level.
How we support
In challenging market conditions, we bring clarity and decisive action, helping businesses to protect value and unlock growth. We are supporting clients across the sector with:
1) Operational improvement – we identify sustainable margin enhancement opportunities, including cost rationalisation and key performance diagnostics.
2) Portfolio restructuring – we assess site viability, rationalise underperforming assets and implement restructuring strategies that stabilise portfolios and preserve enterprise value.
3) Capital optimisation – we support refinancing, covenant negotiations and capital structure redesign to ensure businesses are appropriately leveraged in a more disciplined lending market.
4) M&A Advisory – we provide clear buy-side and sell-side advice, helping clients capitalise on selective opportunities and position assets credibly to investors.
5) Stakeholder engagement – we work alongside management teams to engage lenders, investors and key stakeholders early and constructively, building alignment and protecting long-term value.
If you would like to discuss how these trends may impact your business or portfolio, we would welcome a conversation.
