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.