In this piece, we use RevPAR to model how different hotel markets interact in terms of performance and risk. We explore how strategic exposure can be shaped to deliver:

• High-return portfolios: combinations that maximise RevPAR growth
• Stable portfolios: combinations that minimise volatility
• Balanced portfolios: combinations that optimise risk-adjusted returns

While driving alpha through operational excellence and asset-level strategy is often the focus of hotel investment, this report highlights the critical role of market selection — or beta — in shaping portfolio performance. Choosing the right markets can allow investors to ride structural demand growth and cyclical recovery, delivering material returns even without aggressive asset-level intervention. Conversely, selecting the wrong markets can significantly weigh on performance, regardless of how well individual assets are managed. This analysis underscores that strategic market allocation is not just a backdrop to alpha generation — it’s a powerful lever in its own right.

This isn’t just about chasing returns. It’s about applying a clear, data-led framework to identify opportunities that fit the strategy. In a market shaped by limited stock and real-world constraints, repeatable success depends on disciplined decision-making.

Source: HHTL analysis, CoStar Group

In this visualisation:

• Red tones indicate high correlation, meaning markets tend to move in sync.
• Blue tones indicate low correlation, suggesting more independent or counter-cyclical behaviour.

Observations:

• London shows strong correlations with many regional markets, suggesting its performance is broadly influential.
• Channel Islands/Cornwall/Devon and Scotland Provincial show lower correlations with some urban centres, indicating potential diversification value.
• Clusters of highly correlated markets (e.g. M4 Corridor, South East, and London) may offer high relative RevPAR but limited risk dispersion.

The chart above ranks UK hotel markets by their RevPAR volatility since 2010. Notably:

• Edinburgh tops the list, reflecting its exposure to seasonal tourism and international events.
• London, traditionally seen as a relatively stable market, now ranks second — a shift that may reflect post-pandemic demand swings, and supply additions.
• West Yorkshire, Newcastle, and England Northeast Provincial remain among the most stable, underpinned by domestic demand and less seasonality.

Ultimately, the relevance of volatility depends on corporate objectives:

• Investors seeking yield and growth may tolerate more volatility.
• Those prioritising income stability or long-term hold strategies may lean toward lower-volatility markets.
• Operators and developers should also consider whether volatility is understood and manageable — for example, through brand positioning, pricing strategy, or operational flexibility.

To explore how different hotel markets interact in terms of performance and risk, we simulated thousands of three-market combinations using RevPAR as a proxy for total returns. This reflects the reality that hotel portfolios are often anchored by a limited number of core locations — whether for operational efficiency, brand strategy, or capital allocation.

While our model focuses on three-market groupings for clarity, the approach is highly adaptable. It can be scaled to assess smaller or larger sets of markets, or portfolios of assets, and tailored to reflect specific corporate strategies, investment horizons, or operational models.

Each simulated portfolio was evaluated on two dimensions:

• Average Return: cumulative RevPAR growth across the three markets.
• Volatility: standard deviation of RevPAR, used as a proxy for risk.

To reflect real-world investment decision-making, we applied a weighted scoring model — 60% return and 40% volatility (inverted) — to identify combinations that offer the best balance of performance and stability. Again, this weighting can be adapted to specific corporate objectives.

This produced three distinct strategic profiles:

Best-Balanced Market Combinations

London and Edinburgh are widely recognised as high-barrier-to-entry hotel markets, where the availability of investable stock can constrain portfolio-building strategies. To provide a broader perspective, we’ve excluded both cities from this analysis and selected ten alternative scenarios featuring regional UK markets. This approach offers a clearer comparison of risk and returns dynamics across the country, showcasing a cross-section of combinations based on their balanced score.

This analysis offers a structured, data-led approach to understanding how different hotel markets interact in terms of performance and risk. By simulating thousands of three-market combinations using RevPAR as a proxy for total returns, we’ve identified clear patterns in how growth, stability, and balance can be achieved through geographic exposure.

However, it’s important to recognise the limitations:

• The model is backward-looking, based on historical RevPAR performance since 2010.
• It does not account for forward-looking fundamentals, such as pipeline supply, infrastructure investment, or changing demand drivers.
• RevPAR, while useful, is an imperfect proxy for total returns — it excludes operating costs, capital expenditure, and asset appreciation.

That said, the analysis provides a valuable through-the-cycle perspective, helping investors, lenders, and operators understand how markets behave over time and in relation to one another. It supports strategic conversations around:

• Diversification: avoiding overexposure to correlated markets.
• Resilience: identifying markets that perform consistently across cycles.
• Growth: targeting combinations that deliver strong returns with manageable risk.

At Horwath HTL, we are actively advising investors, owners, operators, and brands on portfolio strategy — helping them navigate market selection, growth planning, and capital allocation in ways that align with their strategic objectives.

Whether you’re building a new platform, repositioning assets, or expanding across regions, we bring data, insight, and experience to support confident decision-making. Our work is grounded in market intelligence and tailored to the realities of stock availability, brand fit, and long-term value creation.