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MARKET REPORT 2014

LONDON AND LUXURY MARKET REPORT 2014

MARKET REPORT & PARIS LUXURY HOTELS 1 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

A TALE OF TWO CITIES – THE LUXURY HOTEL MARKET IN LONDON AND PARIS Our report covers the London and Paris luxury hotel markets over the last seven years. As we review in detail later, within our chosen luxury competitive sets, both markets have shown significant growth during this period, with the average room rate (ARR) for 2013 in Paris now in excess of €960. Whilst London trails behind with an ARR of ‘only’ £603 (€725), this, nonetheless, represents an increase of over 35% over the last seven years.

Demand drivers and caters to the global lifestyles of the super wealthy. In the first six months of 2012 Paris Paris and London are world renowned saw a significant increase in visitors from the luxury hotel markets synonymous with a Middle East (up 19.6%), (up 14.7%), top class hospitality experience. These cities Asia Pacific (up 11.7%) and Latin America (up have always been considered attractive to 7.2%) over the same period of 2011. investors. However, their relative economic and political stability has boosted their In 2012, London and Paris were respectively appeal, with luxury trophy hotels seemingly ranked second (after New York) and third in commanding a significant premium over drier the Global Cities Survey by Citi Private Bank commercial investments. which identified destinations that matter to Strong investment demand for these locations the wealthy and influential. The ranking is not without good reason as, according to was based on cities’ economic activity, the 2014 Top 100 Cities Destination ranking by political power, quality of life, knowledge Euromonitor International, these two capitals and influence. were the first and second most visited cities in Europe last year, with circa 15.5 million visitors to London (+2.3% compared to 2012) and Characteristics approximately 9.8 million to Paris (+3.3%). Prime locations associated with luxury hotels London and Paris are also considered key include the 1st and 8th arrondissements in high-end shopping locations. According to Paris (Right Bank of the River Seine including Knight Frank, the Champs-Élysées in Paris the Opéra, Louvre and Notre Dame) and and Bond Street in London are both amongst and in London. the top ten most expensive shopping destinations in the world. Although typically located in period buildings, both cities have recently seen new build hotel Although both cities have traditionally been developments such as the Hotel in associated with luxury tourism and high-class hospitality, it has been the rapid increase in London and the Mandarin Oriental in Paris. global wealth that has boosted demand for The market is dominated by companies luxury hotel accommodation in London exclusively associated with the luxury sector and Paris. (Mandarin Oriental, Dorchester and Four Research by Knight Frank (2014 Wealth Seasons), although there are also brands Report) suggests that in 2013 approximately only discretely affiliated to larger groups or 4,224 High Net Worth Individuals (HNWIs)* collections and these hotels operate under lived in London and the city has become a individual names. magnet for the world’s super wealthy and a safe haven for investing. Paris, on the other Many of these properties are destination hand, with 1,500 HNWIs, has established hotels and are considered by the super Shangri-La Hotel, Paris itself as a major cosmopolitan destination wealthy as the places to be and to be seen.

*HNWI is defined as someone with US$30m or more in net assets.

MARKET REPORT LONDON & PARIS LUXURY HOTELS 1 MARKET REPORT LONDON & PARIS LUXURY HOTELS 2 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

TOURISM Paris London hailed as the most successful Olympics and two weeks, most people go out and enjoy Paris, in particular, has seen a boom in According to the World Luxury Index Paralympics ever. themselves which boosts the economy, hence the number of tourists from the Far East. released at the first Luxury Hospitality the nickname ‘Golden Week’. Increasingly summit held in in June 2013, Like Paris, London has also become more According to The Guardian, Paris is the Chinese people travel abroad and spend destination of choice for the increasingly London is one of the world’s fastest- proactive in attracting Chinese visitors about £2.4 billion on luxury goods such affluent Chinese tourists. Unlike Britain, growing destinations for consumers seeking and it was recently announced that visa as watches, perfume, handbags, designer is part of the Schengen area, the a luxury hotel experience. applications for Chinese visitors entering clothes, fine wines and cigars. Retailers in the bloc of 26 European countries that require the UK will be simplified. As part of the UK would like them to spend more of their According to the London Evening only a single visa. review, Chinese nationals visiting the EU money here. Selfridges for example employ Standard, almost eight million overseas will not need to submit separate UK visa Mandarin speaking staff and accept China’s The French authorities have also recently visitors, equivalent to the entire resident applications if they book with selected main credit card which is China Union Pay. established a joint visa office in with population, stayed in the city during the travel agents. VisitBritain spent £1 billion in The last two weeks of July is also a period the German authorities to help facilitate first half of 2013 – 8% up on 2012 and an of high spend here as families and students Chinese visitors obtaining visas. 2012/2013 to promote the UK in China. all-time high. Mayor Boris Johnson said prepare for graduation ceremonies.” In an90% effort to maintain its position as one 90% the tourism record was a direct “legacy” of The Financial Times states, “In China there of the world’s top destinations, the Paris the extraordinary image of London seen are two ‘Golden Weeks’ – Spring Festival 85% 85% Chamber of Commerce and Industry (CCI) by billions of viewers during what were Week and National Day Week. During these and80% the regional tourism committee (CRT), 80% have also recently launched the ‘Do you 75% 75% speak touriste?’ campaign which provides FIGURE 2 local70% businesses in popular tourist districts 70% The source of global consumer demand for luxury hotels 2012 with a manual detailing cultural differences, spending65% habits and behavioural traits of 65% visiting nationalities and aims to improve 60% 60% the quality of experience that international : 1.0% (+12.8%) LONDON PARIS vistiors55% receive whilst in Paris. 55% LONDON PARIS 4.0% (-5.1%) 50% 50% July July May May June June FIGURE 1 April April March March August August January January

Top 10 fastest growing hotel October October February February December December November November destinations in the world, 2012September September UK: 13.3% (+8.4%)

Washington 14.1% FRANCE: 1.8% London 11.9% (+2.1%)

Dubai 11.8% : 1.2% (-14.3%) : 2.4% (-11.1%) Atlanta 7.1% CHINA: 5.2% Austin 5.7% (+3.3%)

Miami 4.9% UNITED STATES: 66.3% : 3.8% (+0.5%) (+3.0%) Dallas 4.6% : 1.1% Houston 3.2% (-12.1%) Average rent Average rent Paris 2.9% London (studio) London (en-suite)

Boston 2.6% Average rent Average rent regional (studio) regional (en-suite) GLOBAL CONSUMER INTEREST FOR 0% 3% 6% 9% 12% 15% LUXURY HOTELS GREW +1.5% in 2012 The Bulgari Hotel, London Source: The World Luxury Index™ Hotels Source: The World Luxury Index™ Hotels published in June 2013 Growth in guest demand for luxury hotels in 2012 *The pink circle represents the source of global market demand and the figure in the bracket refers to the change in the market share between 2011 and 2012.

MARKET REPORT LONDON & PARIS LUXURY HOTELS 3 MARKET REPORT LONDON & PARIS LUXURY HOTELS 4 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

LUXURY HOTEL MARKET IN PARIS What is a ? Established by the French Minister Parisian Palace Hotels: New rating system of Tourism in November 2010, the 1835 – Palace distinction is designed to The hotel is today owned and managed by the Brunei Investment Agency’s Dorchester Since 2009, the French Government has gradually introduced a new hotel Collection, which includes The Beverly Hills Hotel and Hotel Bel-Air in Los Angeles, award official recognition to the and 45 in London, Coworth Park in Ascot, the Hôtel Plaza Athénée in Paris, and the Principe di Savoia in Milan. rating system which now recognises a 5-star category. finest 5-star hotels. They must have exceptional qualities that embody 1911 – Hôtel Plaza Athénée The hotel is located near the Champs-Élysées and the Eiffel Tower. It is also part of the Previously, the top star rating category only thirteen French palaces. Six of these are revised and the Four Seasons was awarded French standards of excellence and Dorchester Collection. Famous guests who have stayed at the Athénée over the years include Mata Hari (who was arrested here), Oprah Winfrey and Johnny Depp. was ‘four-star luxe’ and there was an located in Paris and comprise: Palace status. contribute to enhancing the image informal ‘Palace’ category to recognise 1925 – Le Bristol, Paris w Le Bristol The Ritz Paris and The Hôtel de Crillon are of France throughout the world. Hôtel Le Bristol is famous for its historic architecture and luxurious interior. The hotel is outstanding hotels. w Le Meurice currently under refurbishment so it remains to owned by the , a food company established by August Oetker who invented baking powder. The ‘Palace’ category has now been w Plaza Athénée be seen whether they are awarded with Palace Criteria include: status. Rosewood Hotels & Resorts, has been 1928 – Four Seasons Hotel George V formalised and is awarded by Atout w Four Seasons’ George V w Location recently appointed to manage Hôtel de Crillon This historic art deco hotel was converted into a Four Seasons hotel in 1999 following a France, the French Agency for Tourism w Le Royal Monceau – Raffles Paris w Appearance two-year renovation. The Hotel is decorated with 9,000 flowers delivered weekly from which is due to open in the summer 2015. The . Development that considers the aesthetic w Park Paris – Vendôme w History of the site w Character of the establishment 1928 – Le Royal Monceau – Raffles quality of aspiring palace hotels, their The newest addition to the collection is Initially, the judging caused controversy as w Multilingual team This luxury hotel is located at 37 Avenue Hoche and from the day of opening became environmental and social policies, financial Le Royal Monceau – Raffles Paris, which sits the meeting point of many artists and celebrities, such as Coco Chanel, Hemingway and w it omitted the Ritz Paris, The Hôtel de on Avenue Hoche and is owned by Qatari Involvement of staff in seeking excellence Josephine Baker. performance and contribution ‘to the w Fitness area Crillon and the Four Seasons Hotel George investors Katara Hospitality and managed 2002 – Park Hyatt Paris – Vendôme spread of French culture’. w Spa V, but promoted the Park Hyatt Paris – by the Asian group Raffles – it opened in Opened in 2002, and recently awarded the prestigious Palace category, this hotel w Gourmet restaurants represents a contemporary-yet-timeless example of a luxury hotel and recalibrates the As a result of this new classification, France Vendôme, which was less than a decade 2010 following a two year transformation concept of the Palace hotel. Park Hyatt Paris is owned by the French entrepreneur, now has 130 five-star hotels but there are old. Four months later, the judging was by Philippe Starck. Source: French Tourism Office Alexandre Allard.

Le Meurice, Paris

MARKET REPORT LONDON & PARIS LUXURY HOTELS 5 MARKET REPORT LONDON & PARIS LUXURY HOTELS 6 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

LUXURY HOTEL MARKET IN LONDON

and esteem and over the centuries have KEY TO SHOPS Knightsbridge and remained one of the most exclusive hotel Mayfair supremacy addresses in the world. 1 7 The history of luxury hotels in Remarkable examples of luxury hotels 2 8 outside of these clusters include the Ritz London starts somewhere in 3 9 the late 19th century coinciding in , and the Savoy on the Strand. 4 10 with the start of social scene Today, Knightsbridge and Mayfair continue change, the popularity of to dominate the luxury scene in London 5 11 where famous hotels are surrounded by trans-Atlantic travel (ocean 6 12 high-end retail and super prime residential. liners) and the spate of new luxury shopping experiences.

Bond Street Traditionally, the British elite would spend several months of the year in the capital Claridge’s to socialise and to engage in politics. After 10 12 the First World War, however, landowning The 11 9 Connaught aristocratic families started to replace 8 their London mansions with luxury rented The accommodation during the London social Dorchester Browns season. Social gatherings in exclusive public Green Park venues started to outclass those held at 45 Park Lane the mansions of leading members of the aristocracy. One of the largest privately owned mansions in London during that time Mandarin Oriental Four was the Duke of Westminster’s Grosvenor Seasons

House (now the ) 7 The and the Holford family’s Dorchester House Knightsbridge Lanesborough Bulgari 6 (converted in 1931 to The Dorchester Hotel). 5 4 2 3 The opening of Harrods in 1905 and Harrods Selfridges in 1907 gave the city additional appeal. London flourished with the development of luxury hotels. Park Lane, London a fashionable residential address, was Victoria quickly joined by Knightsbridge and Mayfair South 1 The Bulgari Hotel, London in becoming synonymous for prestige

Sloane Square

Establishment of luxury DID YOU KNOW?

1905 1907 HARRODS SELFRIDGES

1812 1815 1837 1906 1928 1931 1972 1876 1905 1905 1945 CLARIDGE’S BROWN’S HOTEL THE RITZ GROSVENOR HOUSE DORCHESTER HOTEL Alexander Graham Bell stayed at American millionaire George A. Kessler The hotel first opened in 1815 as the At the request of Winston Churchill, HOTEL the hotel to demonstrate his new hosted a “Gondola Party” where the Prince of Saxe Coburg Hotel. suite 212 was declared Yugoslavian invention – the telephone – the first central courtyard was flooded to In 1917, during World War I, the territory so that Crown Prince successful telephone call in Great recreate Venice and guests dined in an decision was made to change the Alexander II could be born on his own Britain was made from Brown’s. enormous gondola. name to the less-German “Connaught”. country’s soil. The Savoy was also the first luxury The name originates from the title 1800 1900 2000 hotel in Britain to introduce electric of Queen Victoria’s third son, Prince lights throughout the building, electric Arthur, the first Duke of Connaught. lifts and en-suite bathrooms.

MARKET REPORT LONDON & PARIS LUXURY HOTELS 7 MARKET REPORT LONDON & PARIS LUXURY HOTELS 8 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

LONDON THE CONNAUGHT MANDARIN ORIENTAL 45 PARK LANE Hélene Darroze Heston Blumental Wolfgang Puck

PARIS SHANGRI-LA HOTEL LE MEURICE MANDARIN ORIENTAL Philippe Labbé Alain Ducasse Thierry Marx

45 Park Lane, London

AMENITIES LUXURY FEATURES HOTEL FACILITIES PRODUCTS MICHELIN STAR FLAGSHIP RESTAURANT Guerlain and MO’s Although there is no internationally accepted definition for a luxury hotel, it is an ultra-luxury hotel’s Mandarin Oriental Paris 900 sq m Spa Sur Mesure par Thierry Marx signature product line features, facilities and service level that set it apart from the mainstream five-star market segment. The restaurant re-opened in June 2013 under the Hôtel Le Meurice Dorchester Treatment chef Alain Ducasse after the three-star Michelin Valmont Collection rooms chef Yannick Alléno left the hotel to head the London hotels have, in general, a lower celebrity chefs to create signature destination restaurant at Cheval Blanc in Courchevel. Bedrooms and Suites suite proportion. restaurants. Amongst these, there is Alain Park Hyatt Paris Vendôme 250 sq m Spa Payot Le Pur’ Jean-François Rouquette Amongst the distinctive characteristics of Ducasse at The Dorchester, Dinner by Heston Hôtel Le Bristol Spa La Prairie Epicure, Éric Frechon The distinctiveness of the letting top class hotels are larger than average Blumenthal at Mandarin Oriental and Éric accommodation is also reflected in the Four Seasons Hôtel George V Paris 740 sq m Spa Sodashi Le Cinq, Eric Briffard bedroom sizes and high suite ratios. Although Frechon’s Epicure at Le Bristol in Paris. La Cuisine, Hans Zahner quality of design. Unique examples include Raffles Hôtel Royal Monceau 1,500 sq m Spa Clarins room sizes in hotels included in our study are Il Carpaccio, Roberto Rispoli the Coco Chanel suite, designed by Coco often dictated and somewhat constrained Chanel herself, in the Ritz Hotel in Paris and Spa Shangri-La Hotel Paris 1,000 sq m Spa CARITA L’Abeille, Philippe Labbé; Shang Palace, Frank Xu by the historic character of the building, Mandarin Oriental Hyde Park Diane von Furstenberg’s (also known as the A high quality spa is now, more than ever, a Spa ESPA Dinner by Heston Blumenthal most guest rooms measure between 30 and London “Queen of prints”) suites at Claridge’s. prerequisite for a luxury hotel. Exceptional 40 sq m. Junior suites are typically 45 sq m. Bulgari Hotel & Residences London 2,000 sq m Spa ESPA Il Ristorante, Robbie Pepin examples include the roof top spa at the Signature suites are of between 200 sq m and Four Seasons Hotel London at Vaishaly, ESPA Organic Four Seasons on Park Lane, ESPA Life at 800 sq m Spa Amaranto Restaurant Park Lane Pharmacy, Omorovicza 300 sq m and typically, can be booked by Food & Beverage the Corinthia Hotel and the Bulgari’s spa in 45 Park Lane Dorchester Collection CUT at 45 Park Lane, Wolfgang Puck appointment only. Notable examples include London, which is one of the largest and most London and Paris are both world renowned The Dorchester London Hotel Treatment Valmont, Carol Joy the 220 sq m suite located on the seventh exclusive urban retreats in the city centre. Alain Ducasse at The Dorchester dining scenes. The 2014 lists Dorchester Collection rooms La Praine floor of the Shangri-La hotel in Paris with a The Aman Spa at the Connaught is the first 64 restaurants in London and 82 in Paris. The Connaught Hotel 3,300 sq m Spa AMAN Hélène Darroze at The Connaught 100 sq m terrace facing the Eiffel Tower. The -branded facility built outside This highly competitive environment requires Treatment NuBo, Carita Paris Royal Suite in The Mandarin Oriental London the company’s own hotels. Health Club at the Brown’s Hotel Aromatherapy HIX Mayfair special endeavours to attract guests to dine rooms Associates, Spiezia is 242 sq m and has a balcony that runs the Shangri-La Hotel in Paris made the Condé at the hotel’s restaurant. When Gordon length of the entire suite, giving ultimate Claridge’s has recently announced that the British chef Simon Rogan, who Nast Traveller list of The 35 Best New Spas in Treatment is the holder of two Michelin stars at his restaurant L’Enclume in Cartmel, Ramsey won the Claridge’s contract in 2001 Claridge’s Hotel Sisley views of Hyde Park. the World in 2013. rooms Cumbria is to take the helm at the restaurant that was previously run by it was a huge breakthrough for the young chef Gordon Ramsey for 12 years. The Restaurant will open in Spring 2014. Hotel Le Bristol and Raffles Hotel Royal and relatively unknown chef. As Ramsey’s Many of these properties are destination Hôtel Plaza Athénée Paris Under refurbishment Monceau have the highest suite ratio popularity and recognition grew so did the hotels and are considered by the super Hôtel De Crillon Under refurbishment amongst all hotels included in our analysis. trend for alliances between luxury hotels and wealthy as the places to be and to be seen. , a St. Regis Hotel Under refurbishment

Source: Knight Frank

MARKET REPORT LONDON & PARIS LUXURY HOTELS 9 MARKET REPORT LONDON & PARIS LUXURY HOTELS 10 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

NEW SUPPLY/UPGRADES OPERATORS’ PERSPECTIVE We have interviewed key managers in top London hotels who have also had experience in running and Paris V embarked on a programme to renovate The most recent luxury hotel opening in its guestrooms over a period of three London is The Wellesley. This hotel is located operating luxury hotels in Paris. We asked them about their views and experiences in both markets, In recent years Paris has seen an influx of years at a cost of €200 million. The Ritz in Knightsbridge, in the former Hyde Park below is a summary of their thoughts. new luxury hotels. This included the re- closed in August 2012 for some 27 months Corner underground station that was opening of Le Royal Monceau – Raffles of renovation under the designer eye of permanently closed in 1930. The hotel has Luxury Guest demand Dining in 2010 under the management of the Thierry W. Despont. Meanwhile, Hotel 36 bedrooms, the UK’s largest humidor, a w Luxury is a concept that changes over time. w Paris is the city of romance and fashion. w -based Raffles Group, the Plaza Athénée, which recently celebrated restaurant, bar and cigar terrace. For some, the concept of fine dining is A little tongue in cheek, but 25 years ago a Paris will always dominate the fashion arguably now a little passé. This is not arrival of Shangri-La Hotel, Paris and the its centenary, closed in October 2013 with Still awaiting its arrival to the capital is luxury hotel was one where you had an en-suite market, not least, as it is the home of immediately obvious when one considers Mandarin Oriental, all recognised luxury a planned reopening by May 2014. Lastly, The Peninsula, which has recently secured bathroom and was, effectively, somewhere more Chanel and LVMH – LVMH includes Dior, that there are nearly 150 Michelin starred Far-Eastern brands. The Hôtel de Crillon closed in February a development site at 1-5 Grosvenor Place luxurious than your own home. Louis Vuitton, Givenchy, Fendi, Kenzo, restaurants in Paris and London (82 in 2013 for a €100 million refit which will in after a lengthy hunt for a suitable Most recently, in June 2013, and following a w With the marked increase in residential Céline, Donna Karan, Emilio Pucci and Paris vs. 64 in London) however the offer include the installation of an indoor location. Scarcity of development sites in two-year restoration, the legendary Prince specification it is now harder to offer quality Marc Jacobs. in both cities is a little different. swimming pool. super prime locations have already induced de Galles on the prestigious Avenue George and comfort that is better than at home, Shangri-La to have selected the landmark w Paris trade is much more leisure focused w In Paris it doesn’t matter if it is a Bistro V reopened its doors under The Luxury thus, it is more about offering an exceptional building, , for its new London than London and, as a result its ARR is or a Michelin-starred restaurant, the Collection Hotels & Resorts brand which is service. It is no longer about getting a good London address. Launched in May 2014, Shangri-La higher, although this is in part a function most important aspect is the quality of part of Hotels & Resorts night’s sleep, it is about creating memories that of a historically superior bedroom London marked the first opening of a hotel the food. According to AM:PM Hotels, approximately will make guests want to come back. Worldwide. Still to arrive this year (August of this class south of the . product, albeit the gap is narrowing with 3,250 new luxury bedrooms have become w 2014) is The Peninsula, Paris which is to w As the global distribution of wealth evolves, so London’s offer having been boosted by In London, it is equally important that available in London since 2009. Recent new The market is also awaiting two speculative be located on Avenue Kléber near the Arc does the concept of luxury. In the 80’s and 90’s new openings. the restaurant has a ‘buzzy’ and ‘hip’ supply includes the refurbished Savoy, The high-end hotel developments. Admiralty de Triomphe. The hotel will mark the first luxury was associated with owning – the best car, atmosphere. The food quality is a given, Bulgari Hotel, Corinthia and 45 Park Lane. Arch, the Grade I listed arch located on The w London is the financial capital of Europe the most expensive watch, the most extravagant rather it is the promise of a remarkable European opening of this Hong Kong-based Mall, which leads from to and, as a consequence, enjoys higher The owner of the Lanesborough Hotel, the jewellery. Nowadays people want to go to the experience that differentiates and, group, who have also announced plans to Buckingham Palace, is to be converted into a occupancy than Paris with higher mid- Abu Dhabi Investment Authority (ADIA), moon and have George Michael sing at their in the instance of hotels, can draw open a hotel in London overlooking Hyde luxury hotel, serviced apartments, a spa and week corporate demand. birthday party. Luxury is now associated with external guests. Park Corner. 2016 will mark the opening of announced that the hotel will close for members club. The owners are currently in ‘experiencing’ rather than ‘owning’. w Paris has a higher ARR, however, the lower the LVMH’s Cheval Blanc Hotel (72 bedrooms an extensive renovation project on 20 discussions with a short-list of luxury operators w Mark Sargeant, former General Manager ARO goes some way to narrowing the December 2013, reopening in the fourth and the hotel is due to open in 2016/17. 10 w One General Manager we interviewed has of the restaurant at Claridge’s made the and suites) which is planned to be developed RevPAR gap between the two capitals. quarter of 2014. All furnishings, artefacts in La Samaritaine, a department store next to Trinity Square, the former HQ of the Port of defined selling luxury as selling dreams. The following remarks in an article published and decorations, with more than 3,000 down side of this is that dreams are expensive w The benefit of the higher ARR in the Louvre. London Authority situated close to the Tower in The Times on 13 January 2014: lots were put to auction. The renovated of London, is to be converted into 41 luxury to fulfil. Only a few operators understand how Paris is also offset to some extent by In addition, a number of high-end Lanesborough will feature new designs serviced residences and a 120-bedroom hotel. to realise them. You can reduce your costs by higher payroll costs and related French luxury hotels in Paris are currently being by world-renowned interior designer, The scheme is being developed by the Beijing- 30% and will still be able to operate a hotel but employment laws, that significantly reduce you will no longer be able to sell the dream. profitability in Paris compared to London. upgraded. The Four Seasons Hotel George Alberto Pinto. based Reignwood Group. I don’t really know “what the phrase ‘fine dining’ means now. You can fine dine in a burger joint…. People have woken up to the fact that you can’t afford to make customers wait to get a table, and when you get there you can’t even talk because you’re not allowed to speak above a whisper and then have to spend half the evening with a sommelier you

can’t understand because he’s

mumbling about the wine… High end restaurants are now schooling their staff“ to adapt to the world of ‘fine dining in trainers’. Shangri-La Hotel, Paris

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FIGURE 3 London key performance indicators

ARR ARO £650 90% ARR ARO

£600 85% £550

£500 80%

£450 75% £400

£350 70% 2007 2008 2009 2010 2011 2012 2013

Source: STR Global / Knight Frank

FIGURE 4 Paris key performance indicators

ARR ARO €1,000 ARR ARO 80%

€900 75%

€800 70% €700

65% €600 The Dorchester, London €500 60% 2007 2008 2009 2010 2011 2012 2013

Source: STR Global / Knight Frank With 10,534 bedrooms within 62 hotels, consecutive year of RevPAR growth of ARO resulted in an overall 115.2% increase in 1 GBP = 1.1684 EUR OPERATIONAL PERFORMANCE the provision of luxury hotels in London above 10%. Overall, Paris hoteliers saw RevPAR from £266.98 in 2012 to £574.48 in is greater than Paris. The French capital an impressive 26.1% growth in RevPAR 2013. The months of September and October We have reviewed the trading performance of a defined has approximately 2,288 bedrooms within between 2011 and 2013 which, in 2012 also saw significant improvement in 16 hotels which makes the Paris market FIGURE 5 nominal terms, represented an increase headline performance, with RevPAR growth of set of luxury hotels in Paris and London over the last approximately a quarter of that in London. RevPAR comparison in London and of approximately €138.50. 15.7% and 18.3% respectively. Paris 2007-2013 seven years. Paris Our luxury set’s ARO stood at 77.7% in 2013, ARR In our London set, we have included top-end hotels including The Mandarin London largely on a par with the previous year, and €700 PARIS LONDON Oriental Hyde Park, Bulgari Hotel and The Lanesborough in Knightsbridge, Our Paris luxury hotels have experienced Our hotels in London achieved an ARR of 90 basis points above the 2011 performance. significant growth in ARR since 2009 and RevPAR in 2013 was £468.47 (€563.00) in €650 45 Park Lane, Four Seasons Hotel and The Dorchester on Park Lane as well as £602.94 (€724.61) during the course of 2013, The Connaught, Claridge’s and Brown’s in Mayfair. reported a historic high of €963.51 in 2013, which was 3.4% below the £623.93 (€767.87) 2013. This was circa £17.65 (€21.2) or 3.6% €600 10.1% up on the previous year. This followed achieved in the previous year but circa 5.5% below the 2012 result, however, circa 6.8% In the Paris set, we have included The Mandarin Oriental Paris, Four Seasons three years of consecutive ARR growth above the 2011 figure. €550 above the £571.36 (€685.86) recorded in Hotel George V, and the hotels that form the Dorchester Collection – Hôtel between 2009 and 2012. Equally, Average 2011. London operational performance, As can be seen in Figure 5, although the €500 Plaza Athénée and Le Meurice. We have also selected Le Bristol, The Hôtel Room Occupancy (ARO) has been on the especially in terms of ARR, was lifted during Paris set has historically out-traded London rise in the last three years showing 65.7% de Crillon, Le Royal Monceau – Raffles, Shangri-La Hotel, as well as Park the course of 2012 due to the Olympics, the €450 in 2011, 68.6% in 2012 and 69.50% in 2013. hotels in terms of RevPAR, the challenging Hyatt Paris – Vendôme which has recently been awarded ‘Palace’ status. The The positive results in Key Performance Queen’s Jubilee and the Farnborough Air trading environment in Paris and the positive €400 sample excludes the Ritz which closed its doors in August 2012 for major Indicators (KPIs) translated into Revenue Show all taking place. Hence, the 2012 vs. impact of the Olympics in London saw that €350 renovation. Also, it should be noted that Hôtel Plaza Athénée closed its doors per Available Room (RevPAR) growth over 2013 comparison is somewhat distorted. operational gap narrow during the course 2007 2008 2009 2010 2011 2012 2013 in October 2013 for redevelopment works and The Hôtel de Crillon is in the the course of the last three years. The 2013 The impact of the Olympics was particularly of 2011 and 2012. The return to “normal” Source: STR Global / Knight Frank process of being completely refurbished and no trading data is available from RevPAR stood at €669.33, 11.5% above apparent in August when the 64.3% boost in trading conditions has, however, seen Conversion Rates as at 31 December each year February 2013. the 2012 result and represented a second ARR and an 31.0 percentage point uplift in London RevPAR weaken.

MARKET REPORT LONDON & PARIS LUXURY HOTELS 13 MARKET REPORT LONDON & PARIS LUXURY HOTELS 14 90% 60% 90% 60% LONDON 85% LONDON 85% 50% PARIS 50% PARIS 80% 80% 40% 40%75% 75%

70% 30% 70% 30%

65% HOTEL MARKET REPORT 2014 65% HOTEL MARKET REPORT 2014 20% 20% AVERAGE 2013 AVERAGE 2013 60% AVERAGE 2013 AVERAGE 2013 60% PARIS LONDON PARIS LONDON PARIS LONDON PARIS LONDON 10% 38.2% 23.4% 38.2% 23.4% 10% 38.2% 23.4% 38.2% 23.4% 55% 55% LONDON PARIS LONDON PARIS 50% 50% 0% 0% J F M A M J J A S O N D J F M A M J J F M A M J J A S O N D J F M A M J SEASONALITY PROFITABILITY 2012 2013 2012 2013

As can be seen in Figures 6 & 7, luxury hotels in Paris are particularly well-exposed to the FIGURE 6 FIGURE 7 FIGURE 9 FIGURE 10 FIGURE 11 leisure segment and generate significant Paris & London Paris & London Paris & London RevPAR annual Gross operating profit per available Payroll costs Weekly seasonality of guest demand Monthly seasonality of guest demand (GOP PAR) (%) (%) weekend occupancy levels, peaking on Friday % change room 90% 90% and Saturday nights. London, on the other 90% 90% 90% 20% 60% hand, primarily capitalises on its status as the LONDON 60% LONDON LONDON 85% 85% 85% European capital of business and attracts high- 85% 85% PARIS PARIS PARIS 50% end business travellers on weekdays (particularly 80% 10% 50%80% 80% 80% 80% between Tuesday andLONDON Thursday). The British CHELSEA FARNBOROUGH WIMBLEDON RAMADAN

LONDON 75% LONDON 40% FASHION WEEK FLOWER75% SHOW AIRSHOW (bi-annual) 75% 75% 40%75% capital also has strong leisure demand which 0% helps to generate average weekend room 70%70% 70% 70% 30%70% 30% occupancy of approximately 80%. Average 2012 65% JAN FEB MAR APR MAY65% JUN JUL AUG SEP65% OCT NOV DEC -10% PARIS LONDON 65% 65% 20% 20% 38.2% 23.4% Overall, however, the high-end hotel markets 60% 60% 60% in both capitals are particularly buoyant in the 60% 60% Average 2013 55% 55% -20% period between June and July (influx of the FRENCH OPEN LONDONTOUR DE FRANCE PARISRAMADAN PARIS 10% AVERAGE 2013 10% AVERAGE 2013 PARIS LONDON Paris LONDON PARIS Paris 55% MOTOR SHOW LONDON PARIS LONDON PARIS LONDONLONDON PARISPARIS LONDON PARIS 50% 55% 38.2% 23.4% Middle-Eastern guest demand) and September 50% 55% 45.8% 25.6% 24.2% 41.0% -30% 0% 0% July

(business related demand), with the first quarter 50% May J F M A M J J A S O N D J F M A M J June April 2008 2009 2010 2011 2012 2013 J F M A M J J A S O N D J F M A M J PARIS AIRSHOW (bi-annual) Friday March 50% 50% 2012 2013 2012 2013 Sunday August Tuesday January July Monday

of the year being relatively quiet. The major October May Saturday June Thursday April February December March November September August Wednesday events that influence the capitals throughout January October Source: STR Global / Knight Frank Source: STR Global / Knight Frank Source: STR Global / Knight Frank February December November the year are shown on the timeline below. Source: STR Global / Knight Frank September Source: STR Global / Knight Frank As can be seen in figure 9, the London Since then, London has continued to be challenged by three, high-profile new hotels delivered a more consistent flourish and grew RevPAR by nearly hotel openings, namely Shangri- La, The FIGURE 8 Key drivers for hotel demand in London and Paris 22% between 2009 and 2012. The trend Peninsula and Admiralty Arch, as well as the 90%90% 90% performance in the last five years and proved to be more resilient to evolution was, however, somewhat distorted re-opening of the refurbished Lanesborough. 85% 85% 85% recession than the Paris hotels. by the exceptionally strong trading year in Whilst the Paris luxury set is now showing 2012. The Paris hotel market, on the other a RevPAR premium over London of LONDON LONDON 80%80%CHELSEA FARNBOROUGH WIMBLEDON RAMADAN 80%LONDON As Figure 9 shows, following a steady growth FASHION WEEK FLOWER SHOW AIRSHOW (bi-annual) FASHION WEEK hand, experienced a slight dip in 2011 when approximately 19%, the impact of higher during 2007 and 2008, 2009 was challenging 75%75% 75% the “burka ban” made the Middle Eastern payroll costs cannot be ignored. Paris for both capitals. London, however, saw only a market boycott Paris in favour of London. payroll costs on occasions are nearly double JAN FEB MAR APR MAY70%70% JUN JUL AUG SEP70% OCT NOV DEC marginal drop in RevPAR of 0.5%. Paris, on the those in London with a resultant impact other hand, was hugely affected by the global It remains to be seen whether the luxury Paris 65% on profitability. 65% 65% downturn and reported an 18.9% fall in RevPAR hotel market in Paris will absorb the PARIS FRENCH OPEN TOUR DE FRANCE RAMADAN PARIS PARIS FASHION WEEK FASHION WEEK MOTOR SHOW that year. Both markets recovered in 2010 and reopening of the refurbished hotels. London 60%60% 60% Source: Knight Frank PARIS AIRSHOW (bi-annual) Average rent Average rent recorded double-digit growth in RevPAR. hoteliers, on the other hand, will potentially LONDON PARIS London (studio) London (en-suite) 55%55% 55% LONDON PARIS AverageLONDON rent AveragePARIS rent 50%50% 50% regional (studio) regional (en-suite) July May June April March Friday Friday August January October Sunday Sunday February Tuesday Tuesday Monday Monday Saturday Saturday Thursday Thursday December November September Wednesday Wednesday

1965 1971 1985 1999 2000 2001 2002 2003 2005 2006 2008 2009 2010

The Lanesborough, London

MARKET REPORT LONDON & PARIS LUXURY HOTELS 15 MARKET REPORT LONDON & PARIS LUXURY HOTELS 16 HOTEL MARKET REPORT 2014 HOTEL MARKET REPORT 2014

Le Bristol, Paris INVESTMENT MARKET CONCLUSIONS According to Real Capital Analytics, London was again the most preferred hotel w Within our set, London trails w It is very difficult to gage the w To remain competitive with Paris, investment market in Europe. behind Paris in terms of ARR by impact of new supply in these London needs to be more easily In 2013, London again saw the highest the Concorde La Fayette in Paris. Last year Other key deals in both capitals included the approximately 33%, albeit as a relatively small markets. In the accessible to high-spending visitors volume of hotel transactions in Europe the group also acquired the freehold and disposal of the freehold investment interest consequence, of higher occupancy, past, major supply changes have from emerging markets such as China. at circa £1.4 billion (€1.7 billion). Paris leasehold interests in InterContinental Hotel Metropolitan on Park Lane in London which the difference in RevPAR is less at coincided with wider economic investment activity was circa €1.1 billion changed hands in August 2013 for a price in the on London’s Park Lane for an aggregate £400 about 19%. and geopolitical events. It is w Buyers of luxury hotel properties (£0.94 billion). The overall transaction volume region of £46 million (€55 million) and went to million, at what is believed to equate to a undeniable that London’s luxury are generally long term holders in London increased by over 80% compared yield of about 4% or circa £1,100 per sq ft the Malaysian Genting Group. Also of Malaysian- w The gap in RevPAR is only likely set outperformed Paris during looking to invest for the benefit of to 2012 whilst Paris was up by 41%. (£11,840 per sq m) on a gross internal basis. origin, Koperasi Permodalan Felda Bhd purchased Grand Plaza Serviced ApartmentsNumber in , of transactions to narrow if London seesValue further of transactions 2009 (London RevPAR down 0.5% future generations. These buyers are There continues to be an unsurpassed FIGURE 1 Prime buyers Abu Dhabi Investment Authority (ADIA) was London for circa £98 million (€118 million). In development of luxury hotels compared to circa 19% for Paris), drawn to the very best gateway cities appetite for luxury hotels in London and Paris 36% 64% 28% 72% 45% 55% 19% 81% Prime sales split by nationality and residence, 2012 the second largest hotel buyer in Europe with Paris, Mandarin Oriental Hotel Group acquired in prime locations. With the although, a number of London hotels and to secure economic environments from Middle Eastern investors. a total transaction volume of circa €0.7 billion the freehold interest in the building for circa €290 notable exception of the proposed were off-line at this time. such as London and Paris. Therefore, Investment Authority was the top (£0.6 billion). Their key deal during 2013 was million (£270 million) which reflected circa €2.1 Peninsula, this is unlikely due to the the relative rarity of properties to buy hotel buyer in Europe in 2013 with an overall the purchase of 42 UK Marriott hotels for million/ £1.7 millionLONDON per bedroom. In September PARIS LONDON PARIS Nationality Residence lack of available sites and higher w Many of the luxury hotels in both in these markets and the growth of the transaction volume of circa €1.5 billion (£1.2 €770 million (£640 million). This included 2013, Blackstone purchased the 266-bedroom alternative use values of sites that do markets are compromised by global super-wealthy investor seeking billion), nearly half of which was in a €700 six London hotels. At the beginning of Concorde Opera Saint Lazare for circa €250 become available. the ultimate in wealth preservation will million (£580 million) deal that included 2014 ADIA also acquired the 173-bedroom million (£208 million) which is planned to be virtue of being located in historic four landmark hotels in France, including London Edition. rebranded as the Hilton Paris Opéra next year. buildings which, arguably, no SALESensure that the values of luxury hotels Looking forward, we remain longer meet the expectations will remain strong. 51% w  UK 72% confident that the new supply will of the luxury guest. The new FIGURE 12 Origin of investors in London and Paris, 2011-2013 INTERNATIONAL DOMESTIC Source: Knight Frank NON-UK be absorbed without any material emerging product, which is often less w The continued demand from cash impact on overall ARO levels, rich investors to secure assets Number of transactions Value of transactions compromised being new build and FIGUREprovided 1 Prime thecentral properties London remain buyers well- contemporary, may help to attract in these prime cities, against a 49% Prime sales split by nationality and residence, 2012 36% 64% 28% 72% 45% 55% 19% 81% maintained and fit for purpose. new markets that enable ARR and backdrop of finite supply, ensures that 28% ARO to be driven forward to new yields remain at historically low levels w We will see more new build/re- highs. The charm and history of of approximately 4%. Yields are likely LONDON PARIS LONDON PARIS developed hotels that will allowNationality for those hotels that are located in ResidenceFIGUREto contract 2 Where further are for the the buyers very best from? greater flexibility in terms of space. historic buildings is compelling but property Prime – on sales the splitrare by occasions world region they of buyer, 2012 Hotels will become smaller bedroom- achieved rates and, ultimately, values change hands. SALESwise but will have larger facilities. are likely to be higher with new WORLD REGION Value of transactions Space will become a new luxury. 51% purpose built hotels. Source: Real Capital Analytics / Knight Frank UK 72%EUROPE NON-UK INTERNATIONAL DOMESTIC Source: Knight Frank MIDDLE EAST

MARKET REPORT LONDON & PARIS LUXURY HOTELS 17 MARKET REPORT LONDON & PARIS LUXURY HOTELS RUSSIA & CIS 18 49% NORTH AMERICA NON NON 28%INDIA UK UK ASIA AFRICA FIGURE 2 Where are the buyers from? AUSTRALASIA Prime sales split by world region of buyer, 2012 SOUTH AMERICA

Source: Knight Frank Residential Research WORLD REGION Value of transactions EUROPE MIDDLE EAST FIGURE 3 New-build buyers in prime central London FIGURE 4 New-build buyers in Greater London Sales split by nationality and residence, 2012 Sales split by world region of buyer, 2012 RUSSIA & CIS NORTH AMERICA NON NON INDIA UK UK ASIA AFRICA AUSTRALASIA SOUTH AMERICA OUTER LONDON Source: Knight Frank Residential Research 49% INNER 93.4% LONDON 79.6% FIGURE 3 New-build buyers in prime central London FIGURE 4 New-build buyers in Greater69% London Sales split by nationality and residence, 2012 Sales split by world region of buyer, 2012 PRIME CENTRAL 31% 51% LONDON 51% OUTER UK NON-UK LONDON 49% Source: Knight FrankINNER Residential Research Source: Knight Frank Residential Research 93.4% LONDON 69% 79.6%

PRIME CENTRAL 31% 51% LONDON 51% UK NON-UK

Source: Knight Frank Residential Research Source: Knight Frank Residential Research COMMERCIAL BRIEFING For the latest news, views and analysis of the commercial property market, visit knightfrankblog.com/commercial-briefing/

LONDON

Dominic Mayes Partner, Head of Hotels +44 20 7861 1086 [email protected]

Ian Elliott MRICS Head of Hotel Valuations & Consultancy +44 20 7861 1082 [email protected]

Agata Janda MRICS Associate, Valuations +44 20 7861 1443 [email protected]

PARIS

Philippe Perello Partner, Office Head, Paris +33 1 43 16 88 86 [email protected] Front cover image: Shangri-La, Paris

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