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France 2014: the economic context weighs on the hotel industry

Caught up in the depressed economy of 2013, France’s hotel activity was unable to gear up in 2014. Slowed by fiscal pressure, low purchasing power and growth that was slow to return, it ended the year with a 0.2% drop in its Revenue per available room excluding taxes. Renewed good results VAT included, for Paris and upscale hotels nonetheless offer glimmers of hope.

For the second consecutive year, France’s Revenue per available room (RevPAR) is at half-mast. While modest, the 0.2% drop excluding taxes on the whole of 2014 attests to the French depressed economic climate and the difficulties encountered by the domestic market. This drop is mostly the result of the contraction of the average daily rate, while the occupancy of hotels stabilized at a 65.7% occupancy rate, up by 0.1 point over last year. The 0.4% contraction of the average daily rate excluding taxes, that reached 83.6 euros throughout the country, is primarily the result of increased fiscal pressure and more precisely the increase in the VAT rate applicable to the hotel industry, which rose from 7% to 10% on January 1, 2014. Contrary to the scenario in 2012, French hotels partially absorbed the increased VAT rather than simply adding it to their room rates.

Expressed in euros VAT included, the RevPAR increased by 2.6%. This evolution could have resulted in a slight rebound in hotel results from 2014 if this improvement had not been too weak to impact results excluding taxes. The French hotel market is thus not so structurally depressed as the trend for 2014 could lead one to expect.

Lack of momentum

As in recent years, 2014 was characterized by inconsistent montly trends, with periods of rebound and contraction and no sustainable dynamic that succeeded in taking hold. The phenomenon attests to the fragility of the market trend, which is highly influenced by the tenor of the events calendar that hotels rely on for international clientele in particular.

With a fairly full cultural and business agenda year round, particularly with the biannual organization of the Paris Motor Show, and its traditional tourist appeal among international clientele, Paris remains a special case.

The capital (intramuros) benefits from significantly more activity than the rest of the country and ends 2014 with a stable occupancy rate compared to last year, close to 84%. It thus improves national results by recording 0.9% growth in its RevPAR. The Ile-de-France benefits from Paris’s good ambiance and the organization of exhibitions outside the capital, with 1.3% growth in its RevPAR. Driven by the commemorations of the 70th anniversary of the Normandy Landing in June and the hosting of the World Equestrian Games, Normandy also enjoyed dynamic tourist arrivals this year.

Outside Paris and its region, only two major agglomerations show positive growth in their results: Strasbourg (+1.1% RevPAR) and Lille (+0.5%). Inversely, the absence of Russian clientele due to the crisis in the Ukraine could be felt on hotel activity in Nice and on the French Riviera, particularly at upscale hotels. The agglomeration of Nice shows a 0.4% drop in its RevPAR for 2014.

International arrivals boost activity

In France, the increase in international arrivals, driven by the increase in Chinese tourist arrivals and the return of Americans (attracted by the drop in the Euro, a trend that could strenghten in 2015), made it possible to maintain an increase in upscale and luxury hotel results. 1 point growth in the occupancy on this segment made up for the 0.9% drop in average daily rates excluding taxes, for growth by 0.5% in the RevPAR. Inversely, economy hotels, which benefit less from international clientele and depend more on the domestic market, were hurt the most by the sluggishness of France’s economy. National clientele, suffering from the increase in unemployment and drop in purchasing power, represent 64% of hotel demand, and work days (week days outside the holiday season) represent two-thirds of the annual turnover of hotels.

With these poor results, France trails behind the recovery that its European neighbors entered. All the other key countries on the continent showed significant growth in their hotel activity in 2014: the RevPAR increased by 4.1% in Germany, 4.6% in Italy, 7.0% in the United Kingdom, or even 8.0% in Spain. While the United Kingdom and countries in Northern Europe currently benefit from their better economic dynamic, the recovery for hotels in Southern Europe is strongly impacted by the renewal of international arrivals. 

This article is an extract of the 2015 European report

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