Luxury Hotels, and the Leading Luxury Brands in Europe
2008
What Credit Crunch? More Luxury for New Money European Rising Stars & Established Markets
Gabriele Kiessling, Junior Market Intelligence Analyst Cristina Balekjian, Market Intelligence Analyst Arlett Oehmichen, Associate Director
The Dorchester, London Hotel Arts, Barcelona Mandarin Oriental, Munich
Principe Di Savoia, Milan George V, Paris
HVS – LONDON OFFICE HVS – MADRID OFFICE 7-10 Chandos Street c/ Velázquez 80 6º Izq. Cavendish Square, London W1G 9DQ 28001 Madrid Tel: +44 (20) 7878 7700 Tel: +34 (91) 781 6666 Fax: +44 (20) 7878 7799 Fax: +34 (91) 575 1450 September 2008
New York San Francisco Boulder Denver Miami Dallas Chicago Washington DC Atlanta Boston Newport RI Vancouver Toronto London Madrid Athens New Delhi Mumbai Singapore Hong Kong Shanghai São Paulo Buenos Aires Mexico City Dubai
What Credit Crunch? More Luxury for New Money European Rising Stars & Established Markets
This article investigates how luxury is currently perceived, the main drivers of demand for luxury accommodation, the current and future supply of luxury hotels, and the leading luxury brands in Europe. We conclude by analysing performance levels and future supply of luxury hotels in five key cities – London, Paris, Munich, Milan and Barcelona – and offering a view on the impact the global economy may have on the sector.
Luxury goods and services have experienced 1969, G.N. Garmonsway). According to Collins an unprecedented rise in demand over the English dictionary, luxury can be defined as past few years. As disposable incomes grew being ‘indulgence and enjoyment of rich, across America and Europe, it is no surprise comfortable, and sumptuous living; something that the luxury sector has been one of the that is considered an indulgence and not a fastest-growing segments in recent years. High necessity.’ All in all, whichever way you may net worth individuals from emerging countries want to define the term, there is a general such as Brazil, Russia, India, China and the consensus that luxury is not a necessity but wealthy Middle East have also become more rather a ‘treat’, which has become increasingly important for the luxury sector, thus allowing more complex to define, especially when the demand for luxury to remain robust and looking at the hotel sector. continue to grow. This in turn had a positive impact on the luxury travel market with more people opting to stay in high-end Luxury Hotels in the accommodation. The luxury hotel sector has thus proven to be a dynamic industry that is 21st Century st interesting to many parties, including In the 21 century, definitions about luxury consumers, investors, developers and owners. hotels are blurring. The blurring of the On the other hand, after the ‘credit crunch’ definition has been exacerbated by the fact began at the end of 2007, the hotel sector as a that staying at a luxury hotel or resort, and whole has started to see a slowdown in even travelling by private jet, has become investment, development, and (somewhat) more and more affordable – accessible to a demand. This then leads us to ask: as global wider segment of the population (notably economies face challenging times ahead, will increasingly aspirational and indulgent the luxury hotel sector be able to sustain the consumers who would not normally be downturn? characterised as luxury or high-end travellers). Once a sign of prestige and a differentiation in social class, luxury has developed into an ever- What is Luxury? changing concept that is ‘no longer defined Luxury can be defined in many ways and through material components, but increasingly perceived differently depending on location, through ideal values and experiences’.(Munich culture and even on one’s background. One University of Applied Sciences/Zarges von traditional way of defining luxury is as ‘a way Freyberg Consulting). Luxury is now less solid of life that satisfies all material desires and exclusively reserved, but more modern regardless of expense; something agreeable and flexible. In other words, hotels today want but not necessary or self indulgence in to provide their customers the luxury material pleasure’ (Penguin Books limited, experience by making it somewhat more Harmondsworth, Middlesex, revised edition intangible with personalised services, such as
HVS – London and Madrid Offices 1
private shopping or cooking classes with brands are converting historic buildings into celebrity chefs, in order to create a memorable hotels and therefore add an aura of charm to stay. Hence, luxury is no longer defined by the their properties. The list of examples number of stars a hotel has, but by its tailor- throughout Europe is long and includes hotels made services to the individual needs of the such as the Four Seasons Gresham Palace in guest. Budapest, a historic Art Nouveau building, exquisitely transformed with ultra-modern comforts. TheStreet.com, a financial company The Luxury Hotel and website stated in March 2008:
Product ‘It is difficult to remember Luxury hotels are usually associated with what a stay in Budapest landmark buildings in well established was like before Four destinations such as Paris, London or Milan; Seasons Gresham Palace they provide wealthy visitors with services opened. And what a that are personalised to their needs and palace it is, one of the demands. Luxury hotels are often associated finest examples of Art with tradition and history with design being Nouveau architecture in influenced by a certain time period which in Central Europe, turn maintains the luxurious feel of each hotel breathtakingly restored in the segment. However, recently, the luxury with sweeping staircases, stained glass, mosaics and hotel customer profile has changed. We have ornate ironwork.’ (TheStreet.com, March 2008) recently seen a number of payers in the luxury hotel market invest in their properties not only Another example out of the Four Seasons to make them more attractive to the ever- portfolio has just opened its doors in Florence. demanding guest, but also to make them more The conversion of an old palace and convent appealing to the younger and trendier luxury belonging to the Medici family in the sixteenth consumer. Consequently, luxury hotel brands century has involved the restoration of some and operators have found ways to of Florence’s most beautiful historic structures differentiate their product within the segment. and artefacts, some of which are under protection orders, including many sixteenth- The demand for luxury is clearly influenced by century frescoes, hand-painted floors and the type of property and the physical nature of ancient Chinese wallpaper. the asset. In fact, the motivation for booking into a luxury hotel is highly influenced by the ‘The Best Name-Drop: You are nobody unless you location of the property, its exterior and have booked into the Four interior design as well as the facilities included Seasons Florence… It’s an such as the room types, sizes and amenities, oasis in the city centre: restaurants and spas. However, apart from the eight-acre park, pool physical product, a luxury hotel distinguishes (unusual), spa (unheard itself primarily by the excellent services it of), two palazzos, one of offers. which is dedicated to quiet with a soft-footed personal So, what is it that distinguishes the ‘luxury concierge.’ (Vanity Fair, hotel product’? 2008) Exterior and Interior The third example is Kempinski’s Çırağan Palace, an Ottoman palace on the banks of the (Building) Bosphorus. As mentioned before, luxury is not only perceived by the facilities and services of the When the conversion of a historic building is hotel but also the visual aspects such as the not possible another opportunity for a luxury interior and exterior design. In order to hotel is to appoint a renowned architect to visually differentiate from the competition and design the external features of the building reflect uniqueness and exclusivity, luxury and thus create a landmark property
HVS – London and Madrid Offices 2
recognisable by any potential customer the compared to hotels in other segments, offering world over. A good spacious rooms in order to provide comfort example for this is the and enhance the lavish feel of the guest’s stay. Burj Al Arab in Dubai, Additionally, such properties usually focus on and there are many suites and therefore offer a higher suite ratio, examples in Europe, on average accounting for roughly 30% of the such as the Hotel total room count. Marqués de Riscal, in the Rioja wine region. The outstanding The sizes of rooms within a luxury hotel vary architecture of the Hotel Marqués de Riscal, a greatly due to the range of room types on member of the Luxury Collection, was offer. Standard room sizes start from 30-40 m² designed by renowned architect Frank O. and can go up to 60 m². Suites tend to start at a Gehry and is his second masterpiece in Spain, larger size, with royal suites averaging at 150- after Bilbao’s Guggenheim Museum. 175 m². The size of the guest rooms also depends on location and cannot be The W Hotel Barcelona, also known as Hotel generalised for every luxury property. Vela, is another example of an avant-garde icon; it will tower over a Independent of the room size, however, stunning waterfront, luxury hotels started to offer more in-room designed by the famous amenities and services for their guests in order Spanish architect Ricardo to provide the full luxury experience. General Bofill Levi. The new city in-room amenities include a private minibar landmark is expected to with a selection of drinks and snacks, enhance W’s profile hairdryers, bath robes and slippers, bath worldwide by setting a products provided by a famous brand, Internet new benchmark for hotel design in Europe. access, DVD and CD players, iPod docking stations, radio alarm clocks and others. Services may include 24-hour room service, Location twice daily housekeeping services and Apart from recognition as a landmark complimentary newspapers. building, location is a very important demand driver for luxury hotels and contributes significantly to the uniqueness and exclusivity Food and Beverage of the guest’s experience. Many of the luxury Apart from being a revenue generator for hotels are in prime city centre locations. luxury hotels, the food and beverage facilities Examples of this include the Ritz in Madrid, are an important part of the overall hotel George V in Paris and the Dorchester in London. experience and a number of hotels have invested significant amounts in refurbishing The main factors in terms of location for luxury their food and beverage outlets, in addition to resort properties differ somewhat from their adding renowned chefs to their signature counterparts in gateway cities. Luxury resort restaurants. During the summer of 2006, hotels are characterised by discretion and Thierry Despont, known for designing the privacy, creating the perfect hideaway that is interior of Gordon Ramsay’s restaurant at secluded and yet easily accessible. Claridge’s, oversaw the makeover of the bar at London’s historic The Dorchester. Over the Rooms and Amenities past two years, London alone has seen over five new bars open in its luxury hotels with the The guest rooms are a significant element of intention of attracting a new client base and the guest’s experience. In luxury hotel outdoing one another. properties, the rooms tend to be larger when
HVS – London and Madrid Offices 3
Additionally, restaurants in such hotels tend to Trends in the luxury spa business range from be high-quality, fine dining, which may using natural ingredients (such as flowers, become established dining ‘destinations’ by fruits, herbs, spices or plants) to fusions of being award-winning restaurants. Examples Eastern and Western treatment techniques. include the Rasoi by Vineet in the Mandarin Apart from the classic massage and Oriental Geneva (one Michelin star) serving manicure/pedicure treatments, spas combine Indian cuisine; Alain Ducasse at The classic treatments with holistic and mind-body Dorchester (opened in November 2007); and wellbeing therapies, trigger point therapy, the three-star Michelin Restaurant Le Meurice Reiki, meditation, energy healing and activities headed by Chef Yannick Alléno. such as yoga and Pilates. Luxury hotels specialising in wellbeing may also help the luxury traveller to detox, lose weight or relieve stress by offering extensive fitness areas and relaxation zones. Sustainability and eco- friendly spas are also becoming more important.
Restaurant Le Meurice, Paris Professional spa operators such as Six Senses, In some cases the fine-dining restaurant is Angsana and ESPA have prioritised substantial even more famous than the luxury hotel it training for all staff to ensure the highest belongs to (the Hotel Costes in Paris, for quality of their services. example) and thrives on business from non- The in-room spa programme has become an resident guests rather then hotel guests. alternative for luxury city centre hotels that lack the space for a stand-alone spa facility. Spa and Health Clubs These in-room spas may include a luxurious As self-indulgence is becoming a very yet portable spa bed and a spa basket filled important demand driver within the luxury with sensory items to be enjoyed before, hotel market, the spa has become an essential during and after the treatment. facility in every luxury hotel and is nowadays regarded by consumers as one of the key Whether it is an urban spa, an extensive resort luxury experiences. spa or an in-room spa, the successful spa has a relaxing atmosphere and friendly, highly Whereas luxury city centre hotels offer urban trained professional services. spa experiences, resort locations mostly comprise fully fledged extensive spas It is interesting to note that the luxury spa including the following amenities. experience need not start in the hotel. The new Airbus A380-800 operated by Emirates • Indoor and outdoor pools; between Dubai and New York includes a separate spa area that will offer a number of • Treatment rooms with heated beds; treatment rooms, waterfall features and candlelit and soothingly scented; birdsong sounds. • Separate ladies’ and gentlemen’s luxurious relaxation rooms with fully adjustable Services electronic loungers and personal music Luxury hotels are meant to create a unique systems; experience and exquisite feel for the luxury • Jacuzzis, saunas, steam rooms and traveller. Even more important than the experience showers (light, sounds and physical product is the service a luxury hotel aromas); offers its guests. Only with excellent service and innovative ideas to enhance the hotel stay • Mineral water and fresh fruit juices within can luxury hotels create this most sought after relaxation areas; experience that differentiates them from the • High-end quality spa products and competition. Therefore, luxury hotels are treatments. becoming more and more innovative when it comes to creating personalised services that
HVS – London and Madrid Offices 4
suit each individual’s requirements. Amongst these services are valet parking, 24-hour Economic Overview concierge service, pillow menus, The main economic indicators that have an complimentary limousine service, laundry and impact on travel and hotel accommodation are dry-cleaning, and shoe-shining services. GDP growth and inflation. Table 1 illustrates their development over a period of 12 years A number of luxury hotels have identified broken down into the areas of Western & families as a growing segment and offer Southern Europe and Central & Eastern dedicated services such as babysitting. At the Europe. In 2007 Western & Southern Europe is Plaza Athénée in Paris, for example, children estimated to have achieved gross domestic are given VIP treatment; the concierge is product (GDP) growth of 2.8%. The emerging available to organise family dinners and markets of Central & Eastern European outings, as well as satisfy any requests for a countries (such as Poland, the Czech Republic babysitter. At the Mandarin Oriental hotels, and Hungary) have also performed well, every child receives a welcome gift upon sharing a healthy average GDP growth of 6.2% arrival, while children’s beds and babysitting in 2007. However, the Economist Intelligence services are also available. Pets have become Unit (EIU) forecasts that growth in Europe will another important ‘item’ on the guest services slow over the next few years. list of most luxury hotels as arrangements can be made for dog walking, as well as pet menus Consumer price inflation in Central & Eastern to cater for their dietary needs. For business Europe has fallen sharply from almost 15.0% travellers, brands like Four Seasons offer a in 2000 to a moderate 4.4% in 2007; this is range of services, including translation and compared to 2007 inflation of 2.4% in Western interpreting services, airline reservation, & Southern Europe. Owing to current digital cameras, laptops and many others. economic situations, consumer price inflation in Western and Southern Europe is expected to rise to nearly 4.0% in 2008, before starting to ease in 2009 and then stabilising at around 2.0% from 2010 onwards.
Table 1 Economic Indicators – Europe 2000-11
7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007e 2008e 2009e 2010e 2011e
Western Europe – GDP Growth Western Europe – Inflation
Central & Eastern Europe – GDP Growth Central & Eastern Europe – Inflation
Note: Western and Southern Europe includes Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom Central and Eastern Europe includes Bulgaria, Croatia, The Czech Republic, Estonia, Hungary, Lithuania, Latvia, Macedonia, Poland, Romania, Slovakia and Slovenia
Source: Economist Intelligence Unit, September 2008
HVS – London and Madrid Offices 5
The European Union’s (EU) travel and tourism will decrease. Historic recession, however, industry is expected to contribute 3.6% to the shows that the luxury segment proved to be EU’s GDP in 2008 (US$659 billion), rising in more resilient to economic slowdowns than, nominal terms to US$901 billion (2.5% of total) for example, midscale hotels. by 2018. The contribution made by the travel and tourism industry to the worldwide economy (as a percentage of the total) should Travel and Tourism rise from 10.2% (US$1,877 billion) to 10.7% (US$2,642 billion) over the same period. Demand – Europe The number of international arrivals in Europe The increasing GDP and wealth throughout grew at a compound annual rate of 2% Europe over the last few years has made between 2000 and 2007, from 396 million in accommodation in upscale or luxury hotels 2000 to 480 million in 2007; a good indication affordable to a larger percentage of the that Europe is the most stable tourism region population. However, with the current ‘credit in the world. The strongest annual growth was crunch’ and economic downturn the question recorded in the emerging countries of Central remains whether demand for luxury hotels and Eastern Europe, as shown in Table 2.
Table 2 International Arrivals in Europe 2000-07 (millions)
600
500
400 165 176 150 159 141 144 148 148 300 93 92 93 71 78 80 89 200 74
155 139 141 147 100 140 136 138 136
45 42 44 45 48 52 55 56 0 2000 2001 2002 2003 2004 2005 2006 2007
Southern/Mediterranean Central/Eastern Europe Western Europe Northern Europe
Source: World Tourism Organisation
European tourism had a very good year in tourism performance in Europe. Furthermore, 2007. The overall growth in the number of Europe’s tradition and history will always international arrivals was an estimated 6% on create an appeal for the region as a tourism the previous year. Central/Eastern Europe destination as whole. The continuous remained stable with arrivals at the same level, expansion of low-cost airlines, now targeting whereas Western and Southern Europe Southern, Central and Eastern Europe in recorded growth in the number of arrivals of addition to the established Western European 4%. Sporting events such as the Rugby World city break routes, accelerated the growth in Cup in France, the America’s Cup in Spain international arrivals in Europe. Specific data and, to a certain extent, the Tour de France, for the luxury segment are not available but which started in the UK, as well as cultural we assume that it follows the same trend. events have contributed significantly to good
HVS – London and Madrid Offices 6
The luxury hotel segment in Europe has also Luxury Hotels – Main seen an increase in the supply of branded assets from operators such as Four Seasons, Demand Drivers Mandarin Oriental and Kempinski. Not only According to a study presented at ILTM have these operators increased their presence (International Luxury Travel Market) in 2007, over recent years, but the major luxury brands luxury travel generates approximately also have a number of projects currently under 25 million trips a year, with a contribution that development (with even more yet-to-be- accounts for nearly 25% of total spending. On confirmed developments in the pipeline). average, luxury travellers are estimated to spend between €7,000 and €14,000 on a luxury trip. Preferred European destinations include High Net Worth locations around the Mediterranean, with Italy being the main hot spot. Individuals – An
The global hotel market has shown great Emergent and Active results in terms of performance, which has been largely driven by the growing demand Consumer from leisure and business travellers across the A recent trend that has become more evident board. within the travel and tourism industry is the rise of younger high net worth individuals; a As demand for highly authentic and clientele seeking indulgence and high-luxury diversified products increases, operators in the products. In terms of wealth, this particular segment will need to reinvent their respective segment prides itself on having an average products in order to meet existing clients’ annual income that ranges from US$1 million needs and to differentiate from the to US$10 million. competition. Table 3 illustrates the evolution of high net Additionally, demand for luxury products has worth individuals from 1996 to 2007. The not only been developing within its number of individuals has increased by established target market, but it has also seen approximately 8% with future growth rapid growth in a new, trendy, younger and expected. wealthy clientele, who perceives luxury to be more attainable, accessible and affordable. Table 4 illustrates the wealth growth of high net worth individuals from 2005 to 2007.
Table 3 Global Growth of High Net Worth Individuals 1996-07
12.0 20.0% 11.0 18.0% Number of HNWI 10.0 16.0% 9.0 % Change 14.0% 8.0 12.0% 10.0% 7.0 8.0% 6.0
(millions) 6.0% 5.0 4.0% 4.0 2.0% 3.0 0.0% 2.0 -2.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: CapGemini, Merrill Lynch World Wealth Report 2008
HVS – London and Madrid Offices 7
Table 4 Wealth Growth of High Net Worth Individuals 2005-07
US$ Trillions CAGR % Change 45.5 North America 2005 2006 2007 2005-07 2006-07 40.5 35.5 Europe North America 10.2 11.3 11.7 7% 4% Europe 9.4 10.1 10.6 6% 5% 30.5 Asia-Pacific Asia-Pacific 7.6 8.4 9.5 12% 13% 25.5 Latin America Latin America 4.2 5.1 6.2 21% 22% 20.5 Middle East Middle East 1.3 1.4 1.7 14% 21% US$ Trillions 15.5 Africa Africa 0.8 0.9 1.0 12% 11% 10.5 Total 33.5 37.2 40.7 10% 9.4% 5.5 0.5 2005 2006 2007 Source: CapGemini, Merrill Lynch World Wealth Report 2008
In 2007, global wealth continued to rise as the continued to perform well. While traditionally report by Merrill Lynch/Capgemini reveals. they have been considered developing Total High Net Worth Individual wealth grew countries, the BRIC countries currently present by 9.4% in 2007 to reach a total amount of the highest growth in the number of High Net US$40.7 trillion. Over the past three years, Worth Individuals. The only factor that may global wealth has shown compound annual impede these economies from higher growth growth of 10%. Latin America has seen the is the rising level of inflation rates which seem greatest growth in wealth in just three years, to be more pronounced in such nations. with an astonishing compound annual growth rate of 21%. Latin America’s impressive Table 5 illustrates the growth in the number of growth can be explained by its thriving export High Net Worth Individuals by market in sector and heightened domestic demand. In 2007. 2006 Latin America experienced real GDP growth of 4.8% and attracted substantial Table 5 High Net Worth Individual Population foreign investment. Driven by strong Growth by Market 2006-07 corporate profits, IPO activities and ongoing Czech Russia India investment in Latin America, the growth in the Republic 14.4% 22.7% wealth of High Net Worth Individuals 15.1% China outperformed the growth in all other regions UAE 20.3% from 2005-07, according to the Merryl Lynch 15.3% World Wealth Report. Such an increase Brazil indicates that there is an opportunity for the Singapore 19.1% luxury sector to cast a wider net in search of its 15.3% target markets. Slovakia South Korea 16.0% Indonesia 18.9% 16.8% However, as shown in Table 5, the countries with the biggest growth in the number of High Source: CapGemini, Merrill Lynch World Wealth Report 2008 Net Worth Individuals include Brazil, Russia, India and China. Therefore, we will further investigate how the BRIC (Brazil, Russia, India, India, China, and Brazil led the High Net and China) countries impact the demand for Worth Individual population at 22.7%, 20.3%, the luxury travel and hotel sectors. and 19.1%, respectively. Russia was also in the top ranks of the High Net Worth Individual BRIC Countries population table with a 14.4% growth in 2007. In 2007, the BRIC countries continued to The growth in sales of luxury branded goods, establish their roles as important economies. notably in emerging markets, highlights the While more mature economies showed a slight opportunities for travel and tourism. China is slowdown, these emerging economies reportedly now the world’s third largest
HVS – London and Madrid Offices 8
consumer of luxury goods, after Japan and the Other Asian countries, such as Singapore, USA, accounting for 12% of global sales, Indonesia and South Korea, are also among according to Goldman Sachs, and could the leading growth markets, highlighting the overtake both the USA and Japan by 2015. rising share of wealthy individuals in non- Furthermore, analysts at Bain & Company traditional source countries for tourism. predict that the luxury market in India could grow by 25% a year over the next three years. Luxury Hotel Supply Meanwhile, spending on luxury goods by the As demand for luxury hotels and goods grows, fast-growing numbers of high-end Russian increased competition amongst hotel operators consumers – including the teenage children of for the sector becomes fiercer as they battle for the ultra-rich – is growing in double figures, the same client base. As a result, hotel chains and the trend seems set to continue. Russia is have increased investment in their luxury also one of the fastest and largest growing assets and brands in a way that has resulted in markets amongst the new travelling nations. the development of a number of new projects involving luxury products. Table 6 highlights The BRIC nationals are tending to travel more the brands we consider to be the main luxury frequently at a global level with a strong brands currently operating in Europe and appetite for the high-end luxury products which have proposed assets in Europe. We are flooding into the European market. aware that all of the following operators are actively looking at expanding their presence.
Table 6 Luxury Branded Supply in Europe
Number of Proposed Brand Operator Properties Developments
Conrad Hilton 4 1 The Dorchester Collection The Dorchester Collection 4 0 Fairmont Fairmont Raffles Hotels & Resorts 4 1 Four Seasons Four Seasons Hotels & Resorts 14 3 Kempinski Kempinski Hotels & Resorts 31 12 The Luxury Collection Arabella Sheraton MA, Starwood 33 1 Mandarin Oriental Mandarin Oriental 4 5 Maybourne Hotel Group Maybourne Hotel Group 3 0 Park Hyatt Hyatt International 7 3 Orient-Express Orient-Express Hotels, Trains & Cruises 10 0 Raffles Raffles International Hotles & Resorts 0 2 Ritz-Carlton Marriott International Inc. 10 0 Rocco Forte Collection Rocco Forte Collection 11 2 Shangri-La Shangri-La Hotels & Resorts 0 3 St. Regis Starwood Hotels & Resorts 3 1 W Hotels Starwood Hotels & Resorts 1 6 Stein Hotels and Resorts Stein Hotels 13 3 JW Marriott Marriott International Inc. 3 0 Grand Hyatt Hyatt International Hotels & Resorts 1 0 Jumeirah Jumeirah Hotels & Resorts 2 2
This list is not exhaustive. Source: HVS Research
Of these brands, Kempinski and The Luxury properties in the region at the moment, and Collection dominate the region with 31 and 33 the St. Regis brand has only three. hotels, respectively, in approximately 15 different markets. However, it must be noted We consider these brands to be the main that some of the hotels in the Kempinski players in the European luxury sector and portfolio do not fall into the luxury category. further highlight the following. On the other hand, Shangri-La has no
HVS – London and Madrid Offices 9
Conrad has been then, Fairmont has added another three conservative in its properties. In January 2005, Fairmont acquired expansion plans, the London landmark hotel The Savoy, which demonstrating a is currently undergoing renovation and careful evolution in rebranding; the work is due to be finished in the number of 2009. properties in the region. Its first Four Seasons has property opened in 1989, and the most recent followed a course of opened in 2002, in Ireland. Conrad currently constant expansion has a total of just over 1,100 rooms, with one in Europe, opening further hotel in the pipeline that will add 158 two hotels in 2008: rooms to the portfolio (the Conrad Algarve the Four Seasons Palacio Da Quinta due to open in 2010). The Hotel Firenze and hotel group is keen to develop the brand in the the Four Seasons region further and we expect target locations Hotel Istanbul at the Bosphorus. We are aware for Conrad to be destinations around the that the group is looking for some resort Mediterranean. properties in high-end destinations in the Mediterranean. For example, we are aware of The Dorchester Four Seasons’ wish to operate a hotel with a Collection was number of residential units in Montenegro. rebranded in 2006 to develop an impeccable Kempinski currently portfolio of traditional has a portfolio of 31 and contemporary properties and a properties in Europe development and the USA. The pipeline with another current portfolio of owned and managed 12 hotels that are all properties includes The Dorchester in the to be completed by 2011. The brand has grown heart of Mayfair in London, a 250-room hotel aggressively and has managed to establish long favored by the cream of society; The itself in more than 15 countries over the past Beverly Hills Hotel, a glamorous and celebrity- 20 years. Since 1992 the company has been friendly 204-room property on Sunset investing in its portfolio by opening at least Boulevard in Los Angeles; the elegant Le two properties every two to three years. Since Meurice, a centuries-old, 160-room property 2002, however, the brand has been expanding between Place de la Concorde and the Louvre, even more rapidly: approximately two to three on rue de Rivoli in Paris; Hôtel Plaza Athénée, new hotels have opened each year. By 2011, a 146-room embodiment of Parisian luxury we expect to see another 2,144 rooms added to that stands between the Champs Elysées and the Kempinski portfolio. the Eiffel Tower; and Hotel Principe di Savoia, a cosmopolitan, 401-room property on Piazza The Luxury della Repubblica in Milan. Collection brand is well established in Fairmont Hotels is Europe and has considered to be a significant market reasonably new representation: 33 brand in the hotels currently. The European market. brand has evolved What is striking is steadily since the opening of its first hotel, in that the hotel group London, in 1973. In the early 1990s, the brand appears to follow a followed a trend of opening at least two assets trend of launching its hotels in the region every two to three years. Since 1997, the every two years. The first hotel to be brand’s expansion strategy has been more established in Europe was the Fairmont St dynamic: at least two properties a year have Andrews Resort in Scotland, in 2001. Since been opened or affiliated. In terms of its future
HVS – London and Madrid Offices 10
development strategy in the region, however, other locations in Europe for another nine the brand seems to be taking a more conservative years until the opening of a hotel in Hamburg. approach with only one new hotel in the In 2003, its expansion strategy shifted towards pipeline, which is due to open in 2009. the development of properties in prime European cities, thus resulting in the opening Mandarin Oriental of hotels in gateway cities such as Milan, Paris, first entered the Moscow and Zürich within a short space of European market in time. Development plans for the brand are 2000 with the dynamic and strategic, though not aggressive. Mandarin Oriental Future openings are planned in Turkey and Hotel du Rhône, in Spain. Geneva, and the Mandarin Oriental The majority of Orient- Hyde Park, in London. The company aims to Express’s European develop in prime locations in order to create portfolio is in Italy, but luxury properties that may be considered to be the company also trophy assets. Not surprisingly, therefore, operates hotels in rural future destinations in Europe for Mandarin areas in France, the UK, Oriental include cities such as Milan, Paris, Spain, Portugal and Barcelona and Moscow. Russia. In many instances, Orient-Express hotels command one Maybourne Hotel of the highest rates in the market and they are Group, whose known for their excellent food and beverage headquarters are in facilities; many of the properties have a small Mayfair, London, (fewer than 100) number of keys and operate owns and manages seasonally. Claridge’s, The Connaught and The The Ritz-Carlton Berkeley: three of London’s most renowned concept is a luxury hotels. The Savoy Group was acquired by Irish hotel brand offered property investment group Quinlan Private in by Marriott. Ritz- May 2004; the group changed its name to Carlton has grown its Maybourne Hotel Group when the Savoy portfolio very Hotel was sold to Fairmont Hotels & Resorts in carefully in Europe January 2005. Recently, after completing a £70 both with resorts and with city centre hotels. million refurbishment of The Connaught, The company’s most prominent urban Maybourne Hotel Group revealed that it is properties are the Hotel Arts in Barcelona, the poised to announce its first overseas venture. Ritz-Carlton Berlin and, most recently, the This move will kick-start a phased roll-out of Ritz-Carlton Moscow. Ritz-Carlton has added individually branded hotels in international an affiliated hotel in Europe each year since gateway cities. The hotel group is considering 2000. locations such as Milan and Moscow within its European target locations. The Rocco Forte Collection is a The Park Hyatt brand group of 11 highly debuted in Europe in individual hotels; 1990 with the five new hotels are acquisition of the due to open within Hotel Villa Magna in three years Madrid, which is (including an currently undergoing expansion into the renovation work. The hotel is due to reopen Middle East and North Africa: in Marrakech, later in 2008. The brand did not venture into Jeddah and Abu Dhabi).
HVS – London and Madrid Offices 11
Shangri-La Hotels & openings in luxury destinations including Resorts, a leading St Petersburg, Barcelona, Milan and London. luxury hotel group based in Hong Kong; Stein Hotels and is made up of 52 Resorts specialises in hotels in Asia and the the management of Middle East. As of small luxury lifestyle late 2007, 30 new properties were under hotels across Europe development, including resorts in Europe and and North America North America. Shangri-La does not yet have a offering a full presence in Europe; however, the company portfolio of management services. The brand’s has secured sites in two of Europe’s key philosophy is to combine the unique elements gateway cities: London and Paris, both of of Mediterranean lifestyle with the which are subject to high barriers to entry. conveniences of today’s modern world to Shangri-La’s third development in Europe will create an atmosphere of relaxed sophistication be in Vienna. within a discrete environment. The hotels are characterised by having 25- to 125-rooms with Owned by Starwood charming architecture and design, in idyllic Hotels & Resorts, the locations, and in many cases emblematic and St. Regis Hotels & historic buildings regarded as local landmarks. Resorts brand traces With a portfolio of 14 properties in the region, its name and heritage the brand is well established in the luxury to the internationally market in Europe, especially in London and acclaimed St. Regis Spain where nearly half of its assets are New York, the located. The Elizabeth will be opening soon in original Beaux Arts classic landmark built by London, as well as another property in Colonel John Jacob Astor IV in 1904. There are Mallorca, the Sa Vinya de Son Net which is 13 St. Regis hotels and resorts throughout the expected to have 12 rooms. USA, the Caribbean, Europe and Asia, with each property designed to capture the personality JW Marriott Hotels of the destination. The Lanesborough in London and Resorts is is understood to be the city’s highest Marriott’s most performing luxury hotel in terms of average luxurious brand rate and revenue per available room (RevPAR). offering high levels of comfort to leisure Also owned by and business Starwood Hotels and travellers. The brand Resorts, W Hotels is currently has a a global luxury portfolio of 54 properties worldwide, three of lifestyle brand with which are located in Europe. Currently the 24 properties in brand is still in its early stages as few several destinations properties have been developed within the around the world. Inspiring, iconic, innovative region. The Grosvenor House in London has and influential, W Hotels provides the recently opened after a renovation and ultimate in insider access. Each hotel offers a rebrand scheme which revealed the property unique mix of sophisticated design, chic as the brand’s newest addition. comfort, and cultural influences. W Hotels are unique and individual expressions of modern Grand Hyatt hotels travel and stylish living, featuring serve large business international cuisine, destination bars and destinations that signature spas. The W Hotels brand is new to attract leisure and Europe having opened its first property in corporate travellers, Istanbul in May 2008. The brand, however, has as well as large-scale more aggressive plans in terms of meetings and conventions. The business hotels development in the region with future include state-of-the-art technology,
HVS – London and Madrid Offices 12
sophisticated business and leisure facilities, Capital), Crillon (Starwood Capital), 1 Hotels banquet and conference facilities, and and Residences (Starwood Capital), Andaz specialised programmes that cater to business (Hyatt), and the recently launched MGallery travel and leisure guests. The Grand Hyatt (Accor). brand currently has only one property in Europe with the Grand Hyatt Berlin. Since the opening of this asset, the company has not Luxury Hotel been developing the brand in the region, and has been more active with its Park Hyatt Performance in brand. It is important to note that Hyatt has recently announced that it will be playing a Selected Markets more dynamic role in the development of its The European hotel market has proven to be a brands across all regions worldwide. strong market over the past few years.
Jumeirah, formerly Traditionally, it has been an extremely resilient known as Jumeirah market, despite terrorist attacks, avian International, is influenza and extreme weather, which developing a global underlines the sector’s ability to rebound from super-brand under a external shocks, such as the terrorist attacks in single, distinctive London and the luxury hotel sector’s fast and memorable recovery (after just three months). name. All of its hotel names will feature the Jumeirah identity, yet Between 2003 and 2007 RevPAR in Europe grew by 6% annually. The good years for each will retain their individual style and uniqueness. Jumeirah, which is more tourism in Europe in 2006 and 2007 translated commonly known around the Middle East into an excellent hotel performance across the continent, with occupancy close to 70% and where it originated, has been growing in the average rate above €110 overall. Owing to European markets. With two European properties in its portfolio, both of which are economic conditions, we expect 2008 to located in London, the hotel group has plans experience a slight decrease in occupancy, with average rates remaining in line with the to establish itself as a luxury brand in the region. Jumeirah has signed an agreement previous year. with Beetham Organisation to create the European cities are privileged in the number Jumeirah Hotel at Beetham Tower in London; of luxury properties that are available, and the new £600 million slender curved glass many of them have established luxury flagship landmark for London is to be built on assets. Table 7 gives an overview of the luxury London’s South Riverbank, which is subject to market performance for both established and planning permission and expected to open just emerging gateway cities in Europe. London, in time for the London Olympics in 2012. Paris and Milan are considered established In addition to the brands highlighted above, destinations in the luxury segment and feature stable luxury hotel performance figures as we note that brand development continues to indicated below. Munich and Barcelona are grow as hotel operators face stronger competition in the sector. Companies such as two of the emerging destinations within the Accor, Starwood, Hyatt and Hilton have luxury segment as they have a significant amount of luxury room stock at present and further enhanced their brand awareness and offering by adding new luxury brands under further luxury developments in the pipeline. their flags. Amongst these are
Waldorf=Astoria (Hilton), Baccarat (Starwood
HVS – London and Madrid Offices 13
Table 7 Luxury Hotel Performance in Selected Cities 2005-07
2005 2006 2007 Average Average Average Occupancy Rate (€) RevPAR Occupancy Rate (€) RevPAR Occupancy Rate (€) RevPAR
London¹ 76 % 477 363 83 % 540 448 84 % 600 504 Paris² 68 555 376 72 617 446 76 688 525 Munich³ 77 286 220 78 317 246 74 284 210 Milan4 56 430 239 64 464 299 65 482 312 Barcelona5 69 288 197 72 309 224 73 346 253
¹ Sample includes The Dorchester, The Lanesborough, Claridge's, Four Seasons Park Lane, The Berkeley, Mandarin Oriental Hyde Park ² Sample includes Le Meurice, Four Seasons George V, Plaza Athénée, Hotel Le Bristol, Hotel de Crillon, and Hotel Ritz ³ Sample includes Mandarin Oriental Munich (under refurbishment in 2007), Kempinski Vier Jahreszeiten, Hotel Bayerischer Hof and The Charles Hotel (opened in October 2007) 4 Sample includes Four Seasons Milan, Bulgari Hotel, Principe di Savoia, Grand Hotel et de Milan, Park Hyatt Milan, and Carlton Baglioni 5 Sample includes Hotel Arts, The Palace, Majestic, Omm, Gran Hotel Florida, Claris, Casa Fluster, and Rey Juan Carlos I
Source: HVS Estimates
London has long been an established luxury segment has seen virtually no supply growth hotel market, linked closely to the business over the last few years. However, we note that and leisure demands in the city. The luxury the following new supply will be entering the segment has seen some supply growth over city in the near future. the last few years with the opening of properties such as the Mandarin Oriental, as • A 150-room Mandarin Oriental will be well as a number of renovations and located within the redevelopment of a rebranding schemes, such as the acquisition of 1930s Art Deco building at 247-251 rue Saint the Maybourne Hotel Group by Quinlan Honoré, in the historic and fashionable Private (which resulted in a £70 million centre of the city. The estimated opening refurbishment of The Connaught), and the date for this hotel is mid 2010; renovation of the Savoy and the Four Seasons • The 118-room Shangri-La hotel will be on Park Lane. London’s luxury segment has enjoyed 10 avenue d’Iena, in Paris’s 16th increasing occupancy rates leading to a rise in arrondissement. Located near the Eiffel average rates, and consequently a growth in Tower and the Trocadero, the hotel, RevPAR levels in the past three years. converted from the Palais Bonaparte, will offer some of the city’s finest views of the We expect the market to become slightly more River Seine. The estimated opening date for competitive with the addition of luxury this hotel is the beginning of 2009; properties such as the reopening of The Savoy and the opening of the 195-room Shangri-La • The 213-room Royal Monceau, near the Tower Bridge in 2012, as well as the Jumeirah Salle Pleyel and the western end of Beetham Tower, the new £600 million slender Faubourg St Honoré, closed in June 2008 for curved glass landmark for London that is to be a complete overhaul by designer Philippe built on London’s South Riverbank, just before Starck. The hotel is due to reopen in 2009. the Olympic Games. In addition, the former After the renovation, each floor will feature Playboy Club and Casino will become the a small lobby overlooking the interior latest addition to Dorchester Collection gardens. portfolio as an extension of the existing Dorchester hotel on 45 Park Lane, which has Munich has an established luxury segment already achieved planning permission. We are and is considered to be Germany’s main also aware of several unconfirmed projects. luxury destination. Currently, Munich has a healthy pipeline for future developments in Paris is yet another established luxury hotel the city, a number of them being within the market, linked closely to commercial demand luxury segment. The opening of new luxury as well as the fashion industry. The luxury supply will have a positive effect on the
HVS – London and Madrid Offices 14
market by enhancing Munich’s image as a and 2007, on account of the limited supply luxury destination. In 2006, the city achieved growth in the luxury segment and strong record occupancy levels, over 78%, which demand from the Free Independent Traveller highlights the city’s appeal as a destination. (FIT) and Meeting, Incentive, Conference and Exhibition (MICE) segments. In October 2007, Rocco Forte opened its landmark property, The Charles Hotel, adding Barcelona will further enhance its image as a another luxury asset to the city’s supply. The top-class destination with the following hotel added 132 rooms to the local five-star developments. segment and is Rocco Forte’s second opening in Germany after the Villa Kennedy in • The second W Hotel in Europe: a luxury Frankfurt, which opened in 2006. landmark designed by the architect Ricardo Bofill. The W Barcelona will appear as a Milan, similar to Paris, is an established luxury modern icon above the Catalan capital, hotel market, whose close links to commercial along the waterfront. The 473-room hotel is demand as well as the fashion industry make scheduled to open in September 2009 and it an attractive destination for investment in the total investment is said to amount to the sector. The luxury segment had seen little €180 million. The hotel will have dining, supply growth over the last few years until the entertaining and nightlife facilities, a spa, a opening of the Bvlgari Hotel and the Park rooftop bar, a retail outlet, indoor and Hyatt Milan. outdoor pools, and extensive meeting facilities. The W Hotel is being developed Consequently, hotel occupancy suffered in by four of Spain’s leading real estate 2005 with the opening of two new hotels, but consortia – FCC Construction SA, COMSA, 2006 and 2007 have proven that this new OHL SA, and Sacresa – under a long-term supply has been successfully absorbed. We concession agreement from the Port expect to see the following developments in Authority of Barcelona. the city in the near future. • The 98-room Mandarin Oriental hotel will • A W hotel is expected to open in 2010 in the be positioned at the very centre of heart of the Brera district. This hotel will Barcelona, in Paseo de Gracia, a location feature 76 rooms and will be the third that will provide easy access to the city’s property managed by Starwood Hotels & most exclusive shopping area, and its Resorts in Milan; dining and cultural venues. Furthermore, the property will have various dining • Casa Armani, the famous Italian fashion facilities, bars and a spa including private house, will open a hotel on the upper floors treatment rooms with water and heat of its Armani shop, located at the junction therapies. of Via Manzoni and Via Montenapoleone. The hotel will have approximately 80 rooms and is estimated to open in 2010; The Impact of the • A Mandarin Oriental hotel is currently ‘Credit Crunch’ under development on Via Monte Di Pieta. At the beginning of the second half of 2007, the This property is being developed by Statuto world began to experience an economic crisis Group. The proposed hotel will feature which came to be known as the ‘credit crunch’. between 97 and 104 rooms and is expected As the real estate markets started to decline, to open in March 2010. lending and financing from banks and Barcelona is a very well-established, mature financial institutions decreased, which led to a market with historical occupancies of around slower investment arena in the hotel sector. 70%. 2006 and 2007 proved to be very good Recent credit restrictions have had a years for the Barcelona hotel market with reasonable impact on some projects already occupancies of 70% and 73%, respectively. under construction, which had to be halted or Barcelona was able to record a strong increase delayed due to lack of financing. New hotel (roughly 14%) in average rate between 2006 developments have decreased in terms of
HVS – London and Madrid Offices 15
project numbers as developers who still need occupancy levels in 2008, with an estimated to obtain financing are facing more difficulties recovery beginning, at the earliest, in 2010 when being granted a loan. However, it must according to industry professionals. Average be noted that interest in the luxury segment is rates will remain competitive across the sector still very much alive and that financing for as the main players aim to retain their trophy assets in prime locations may have an customers and attract new wealthy individuals advantage. to the higher end of the accommodation sector. In terms of performance, luxury hotels are likely to see occupancy levels drop, which will Brand awareness and differentiation will be in turn have an impact on RevPAR levels, as significant factors amongst luxury brands as average rates are expected to remain at similar competition increases and the luxury concept levels as 2007, with growth remaining at widens. inflation levels, if not stabilising. In order to attract demand, it is likely that we will see the Despite this year’s tougher market conditions, market discounting rates in the short term. hotels continue to attract developers’ and investors’ interest. Although it is undeniable The luxury hotel sector has shown to be more that as a result of the subprime crisis there is resilient to the economic downturn up until less debt available for investors, it should be now. However, in the face of increased noted that opportunities in the market remain, competition amongst operators and the variety and demand for luxury is still high – especially in brands in the segment, hotel chains will in gateway cities and for internationally have to differentiate their services and branded luxury hotels. The luxury segment is products in order to stand out in the market expected to feel less of an impact from the and attract their client base. Guest satisfaction current situation, as cash-rich high net worth in the luxury segment is extremely important individuals, with increasingly liquid and, at times when operating costs are rising, prosperity, continue to give preference to such properties still need to offer their guests trophy assets and are ready to spend their an experience that is remarkable and money on such products and investments. outstanding. These may well be from the new-found billionaires in the emerging BRIC countries who are keen on European travel and Future Outlook investment opportunities. We expect to see Prospects for 2008/09 are uncertain as we go further opportunities in Central and Eastern into a global economic slowdown which has European markets as these countries still show had an impact across all industries, including considerable potential. The credit crunch will the hotel industry. Also, it should be noted also reveal the market presence of brands not that major events (those drawing a large only in the luxury sector but across the entire number of spectators) have been few and far hotel industry, which as a result will clearly between in 2008, compared to 2007 and in indicate where each brand stands and the particular to 2006. Certain factors, such as opportunities available for success. climate change, which may possibly result in higher taxes for businesses and individual The luxury hotel market along with the travel travellers, and the appreciation of the euro industry will continue to grow and draw against the US dollar also deserve attention. interest from different parties that regard it as Conversely, the affluence of and the increase a sound investment opportunity as well as an in travel demand from the ‘BRIC’ countries attractive consumer product. To guarantee (Brazil, Russia, India and China) are expected sustainability in the future it is necessary that to contribute positively to European tourism the luxury hotel sector adapts to global and to the luxury hotel segment. Luxury hotels changes concerning environmental issues as across Europe are expected to record lower well as trends in consumer demand.
HVS – London and Madrid Offices 16
About the Authors
Gabriele Kiessling is a Junior Published by: Market Intelligence Analyst. HVS – London Office Gabriele is originally from 7-10 Chandos Street Germany and speaks English, Cavendish Square Spanish and French. She London W1G 9DQ graduated at the University of Tel: +44 (20) 7878 7700 Surrey in 2003 and holds a Fax: +44 (20) 7878 7799 Bachelor Degree (Hons) in Tourism and Management. She HVS – Madrid Office joined HVS’s Madrid office in c/ Velázquez 80 6º Izq. 2007 and is responsible for all 28001 Madrid aspects of research for the office. Tel: +34 (91) 781 6666 Fax: +34 (91) 575 1450 Cristina Balekjian is a Market Intelligence Analyst with HVS’s London office. Originally from For further information please Brazil, she worked in a number of contact: operational roles in the Gabriele Kiessling – hospitality industry before [email protected] joining HVS in 2007, where she Cristina Balekjian – has worked on a number of [email protected] research-based assignments. Cristina holds a BSc (Hons) in Arlett Oehmichen – International Hospitality and [email protected] Tourism Management. or visit our website at: www.hvs.com Arlett Oehmichen is an Associate Director with HVS’s London September 2008 office, specialists in hotel valuation and consultancy. She joined HVS in mid 2006 after six months’ experience in the hotel © 2008 HVS. All rights reserved. investment industry as well as operational hotel experience during university placements with Hilton and NH Hoteles. Arlett has studied Business Administration at the Dresden University of Technology, Germany, and Universidad de Cordoba, Spain. Since joining HVS, she has conducted numerous valuations and feasibility studies in Europe, Middle East and Africa. Arlett has worked on assignments for hotels as well as mixed-use developments comprising residential, rental pools, golf courses and marinas.
HVS – London and Madrid Offices 17