Corporate uncertainty and tight travel budgets took their toll on hotels in the capital during the first half of the year, according to figures from PwC.
Occupancy rates are forecast to have declined by 1.8 per cent this year to 81 per cent for London-based hotels and are expected to drop again by 0.8 per cent next year to 80 per cent.
Over the next year London hoteliers could enter an "adjustment period", PwC has said, in which business guests will be replaced by a higher number of leisure travellers lured to the UK by the fall in sterling, despite ongoing security concerns.
However, a supply glut and lower overall demand for hotel rooms are still likely to weigh on growth, researchers warned.
Across the UK a further 18,000 rooms are expected to open next year, of which 7,000 will be in London – around the same as the combined 2017 pipelines for Edinburgh, Manchester, Aberdeen, Belfast, Birmingham, Cambridge, Liverpool, Leeds, Glasgow and Bath.
"Uncertainty is dangerous and lower confidence pre and post the EU Referendum, as well as an economic slowdown, have impacted corporate budgets and travel, a vital segment for hotels," said Liz Hall, head of hospitality and leisure research at PwC.
Hoteliers will need to make up for this by attracting more leisure travellers. But, a slow absorption of new rooms in London and some regional cities may put pressure on trading. Add to this mix, brisk growth in serviced apartments and Airbnb listings and it’s a case of weaker demand chasing more rooms.
However, falling Sterling may bring some short term benefits to leisure tourism to London and international destinations such as Edinburgh. It may also result in more staycations across the United Kingdom.
For the regions, on the other hand, 2017 is set to be a bumper year. Occupancy rates are set to reach 77 per cent, which would be the highest on record.
As well as attracting overseas tourists, these figures will be welcomed by the UK's staycation industry, which has been touted as one of the first segments of the economy to rebound after the Brexit vote.