Understanding Demand, Revenue Potential and Costs for London Landlords

Central London remains one of the most competitive and closely watched accommodation markets in Europe. For property owners and investors, the question is no longer whether short-term or serviced accommodation can generate attractive revenue, but whether it can still deliver sustainable net profit after regulation, tax changes, operating costs and management fees.

London recorded around 21 million international visits in 2024 and total visitor nights in the capital rose from approximately 146 million in 2019 to 154 million in 2024. The hotel sector has shown resilience, with London achieving full-year occupancy of around 82.5% in 2025 and RevPAR growth of 1.5% compared with the previous year. Average daily rates (ADR) in central London have reached record levels in some months, with July 2025 seeing an ADR of approximately £234.58 and RevPAR of £207.93.

Against this backdrop, serviced accommodation can still be profitable in Central London, but only when it is approached as a carefully managed business rather than a passive income stream.

At Dwellers Delight, we help owners evaluate whether their property is suitable for short-term or serviced accommodation, model realistic returns and operate within current regulatory and tax requirements.

Important: This article provides general information for property owners and is not legal, tax or financial advice. Rules can differ by borough, property type and ownership structure. Always confirm your position with the relevant local authority and qualified adviser.

 

 

The Profitability Question in 2026

The profitability of serviced accommodation in Central London depends on three main factors:

1. Gross revenue potential – nightly rates, occupancy and seasonality.
2. Operating costs – cleaning, utilities, management, maintenance, insurance and platform fees.
3. Regulatory and tax environment – planning rules, business rates or council tax, and the post-FHL tax regime.

A property that appears highly profitable on gross revenue alone may produce a much lower net return once all costs and obligations are considered.

Gross Revenue Potential in Central London

Hotel performance as a market indicator

London’s hotel performance provides a useful benchmark for serviced accommodation. In 2025, central London hotels achieved an average occupancy of around 84% in some samples and maintained strong profitability despite cost pressures. Average daily rates in central London have increased, with some months showing ADR above £260 and RevPAR above £220.

While serviced apartments are not directly comparable to hotel rooms, these figures indicate sustained demand and pricing power in the central London market.

Serviced apartment nightly rates

Indicative ranges for Central London serviced apartments in 2026 suggest:

• One-bedroom apartments:
• Off-peak (January–February): approximately £120–£160 per night.
• Shoulder seasons (March–May, September–October): approximately £150–£200 per night.
• Peak summer (June–August): approximately £190–£260 per night.
• Festive period (late December): approximately £200–£280 per night.
• Two-bedroom apartments:
• Off-peak: approximately £170–£220 per night.
• Shoulder seasons: approximately £200–£270 per night.
• Peak summer: approximately £250–£340 per night.
• Festive period: approximately £260–£360 per night.

Actual rates depend on location, property quality, reviews, booking lead time, minimum stay requirements and the operator’s pricing strategy.

Illustrative gross revenue example

Consider a well-presented two-bedroom apartment in Central London with an average nightly rate of £240 and 70% occupancy:

This figure represents gross booking revenue, not profit. From this amount, the owner must deduct all operating costs, management fees, taxes and rates.

Operating Costs That Affect Profit

Serviced accommodation involves more ongoing costs than a traditional long-term let.

Cleaning and laundry

Professional cleaning between guests is essential. In London, a professional clean of a two-bedroom property can cost approximately £80–£140 per turnover, depending on size, location and cleaning standards.

Frequent short stays increase the number of cleans per year, while longer stays reduce turnover frequency but may require mid-stay cleaning for extended bookings.

Utilities and consumables

Unlike many long-term tenancies, serviced accommodation typically includes:

• Electricity, gas and water.
• High-speed internet.
• Toiletries, cleaning products and kitchen consumables.
• Linen and towel laundry.

These costs vary by property size, occupancy and season.

Management and platform fees

Professional management for short-term and serviced accommodation is more intensive than standard residential management. Typical management fees in the UK range from approximately 15% to 25% of revenue, reflecting the additional work involved in pricing, guest communication, cleaning coordination and maintenance.

Platform commissions for online travel agencies and booking channels can add a further percentage of each booking.

Maintenance and repairs

Regular maintenance, periodic redecoration, furniture replacement and unexpected repairs must be budgeted for. Serviced accommodation experiences higher wear and tear than a long-term let due to frequent guest turnover.

Insurance

Standard residential home insurance is generally not sufficient for short-term guest accommodation. Owners should arrange specialist short-term let or commercial insurance covering:

• Buildings and contents.
• Public liability.
• Guest occupancy.
• Loss of rental income.
• Accidental and malicious damage.

Other operational costs

Additional costs may include:

• Dynamic pricing software.
• Channel management tools.
• Accountancy and tax advice.
• Safety certificates and compliance work.
• Marketing and photography.
• Void periods with no bookings.

For a self-managing owner running a considered operation, software and tool costs alone can add up to approximately £1,300–£2,000 per year for a typical London property.

Regulatory and Planning Considerations

London’s 90-night rule

In Greater London, an entire residential property can generally be let short-term for up to 90 nights per calendar year without planning permission, subject to applicable conditions.

Exceeding this limit without appropriate planning consent may constitute a breach of planning control and can lead to enforcement action and significant fines.

This rule affects how many nights a property can be used for whole-home short-term lets and must be factored into any revenue model.

National registration scheme

England is moving towards a mandatory national registration scheme for short-term lets. Once implemented, hosts will likely need to register their properties and display a unique registration number on listings.

While detailed requirements are still being finalised, professional hosts should already maintain a complete compliance file including safety certificates, insurance and property documentation.

Lease, mortgage and building restrictions

Owners must also review:

• Mortgage-lender consent.
• Lease or freeholder restrictions on short-term letting.
• Building rules and management company policies.
• Local enforcement priorities.

A property that appears suitable for serviced accommodation may be restricted by its lease or financing arrangements.

Tax Changes After the FHL Regime

The Furnished Holiday Lettings (FHL) tax regime was abolished from April 2025. HMRC states that income previously treated under the FHL rules is now generally combined with other property income and taxed under ordinary property-income rules.

Key implications include:

• Mortgage interest relief is restricted to a basic-rate tax credit rather than full relief against rental income.
• Capital allowances for furniture and equipment are no longer available in the same way.
• Previous Capital Gains Tax reliefs specific to holiday lets have been removed, and gains are generally taxed at standard residential CGT rates.

These changes reduce net profitability compared with the former FHL regime and make cost control and operational efficiency more important.

Council Tax or Business Rates?

In England, a short-term let may be assessed for business rates rather than council tax if it meets specific thresholds. The property must generally be:

• Available for commercial letting for at least 140 days in a 12-month period.
• Actually let commercially for at least 70 days in that period.
• Intended to be available for at least 140 days 

Stays longer than 28 nights are typically disregarded for these thresholds.

Where a property qualifies for business rates, it may be eligible for certain reliefs, including Small Business Rate Relief in some cases.

Where the thresholds are not met, council tax is generally payable, and some properties may be subject to a council-tax premium for second homes or furnished properties that are not anyone’s main residence.

Owners should track letting days carefully and confirm their property’s classification with the local authority and Valuation Office Agency.

Short-Term vs Long-Term Letting in Central London

For many owners, the key decision is whether a property is better suited to short-term serviced accommodation or traditional long-term letting.

Potential advantages of short-term serviced accommodation

• Higher gross revenue potential in strong locations.
• Greater flexibility to use the property personally or sell without tenant constraints.
• Ability to adjust pricing and availability according to demand.
• Opportunity to pivot between short-term, medium-term and long-term strategies.

Potential advantages of long-term letting

• More predictable monthly income.
• Lower operational complexity and fewer guest turnovers.
• Reduced cleaning, utilities and consumable costs.
• Simpler regulatory treatment under residential tenancy law.

Recent analysis suggests that short-term lets in London can earn significantly more than buy-to-let on a gross basis, but higher running costs and the 90-night rule change the equation.

The correct comparison is not gross revenue but net, risk-adjusted return after all costs, taxes and regulatory constraints.

Illustrative Profitability Scenario

Consider a two-bedroom Central London apartment with the following simplified assumptions:

• Average nightly rate: £240.
• Occupancy: 70%.
• Gross annual revenue: approximately £61,320.

From this, the owner might deduct:

• Management fees (e.g. 20%): approximately £12,264.
• Cleaning and laundry (e.g. 100 turnovers at £100): approximately £10,000.
• Utilities, internet and consumables: variable, e.g. £6,000–£9,000.
• Insurance: variable, e.g. £800–£1,500.
• Maintenance and repairs reserve: e.g. £2,000–£4,000.
• Platform and software costs: e.g. £1,000–£2,000.
• Council tax or business rates: variable by borough and property.
• Income tax after allowable expenses and mortgage-interest restrictions.

Even with strong gross revenue, the net profit margin may be significantly lower once all costs are included. This is why professional pricing, cost control and occupancy management are critical.

When Serviced Accommodation Is Most Likely to Be Profitable

Serviced accommodation in Central London is most likely to be profitable when:

• The property is in a high-demand location with good transport links.
• The interior is well presented and suited to the target guest profile.
• The owner uses dynamic pricing and professional management.
• Operating costs are carefully controlled and monitored.
• The property complies with planning, safety and insurance requirements.
• The owner has realistic expectations about net returns, not just gross revenue.

Properties that are poorly located, inadequately furnished, non-compliant or self-managed without robust systems are more likely to underperform.

The Role of Professional Management

Professional management can improve profitability by:

• Optimising pricing according to demand and seasonality.
• Reducing void periods through effective marketing and channel management.
• Maintaining high cleanliness and guest-satisfaction standards.
• Coordinating maintenance before issues affect reviews or bookings.
• Ensuring compliance with safety, insurance and regulatory requirements.
• Providing accurate financial reporting to the owner.

Management fees reduce gross revenue, but they can increase net profit by improving occupancy, rates and operational efficiency.

Why Choose Dwellers Delight?

At Dwellers Delight, we approach serviced accommodation as a disciplined, data-informed business.

Our service includes:

• Property assessment: evaluating location, layout, regulations and target market.
• Revenue modelling: projecting realistic occupancy, rates and net returns.
• Compliance review: identifying planning, safety and insurance requirements.
• Professional presentation: photography, listing optimisation and guest information.
• Dynamic pricing: adjusting rates according to demand, events and seasonality.
• Operational management: cleaning, maintenance, guest communication and inspections.
• Owner reporting: clear, regular financial and performance updates.

We do not promise unrealistic returns. We aim to help owners understand the true profitability of their property and operate it responsibly within the 2026 regulatory environment.

Book a Property Assessment

If you own a property in Central London or are considering an investment, the most useful next step is a detailed, property-specific assessment.

We can help you evaluate:

• Whether your property is suitable for short-term, medium-term or long-term letting.
• Realistic revenue and occupancy ranges based on location and property type.
• Key regulatory and planning considerations, including the 90-night rule.
• Expected operating costs and management requirements.
• How recent tax and rates changes affect your net return.
• Whether serviced accommodation aligns with your financial and personal goals.

Contact Dwellers Delight to book a property assessment and receive a tailored profitability analysis for your Central London home.