The undeniable success of the luxury hotel segment in recent years is due to a combination of favorable factors that nothing appears to be affected for the moment, neither the toughening economic crisis throughout much of Europe, nor the shock to the banking system in 2009, nor the geopolitical instability of several regions around the world. The currently solid performance and development forecasts are reinforced by the regular –or accelerated– growth of well-to-do clientele that appreciate the quality of the properties; by the interest showed in this sector by investors with considerable financial means – sovereign funds and large private fortunes – to improve the offer and create a new one; and by the dynamism of Asian and American groups, that have decided to expand beyond their usual territories.
Of the Top 10 countries with the highest number of millionaires, the United States (3.5 million), Japan (2 million) and Germany (1 million) continue to occupy the top steps of the podium, followed by China (650,000), ahead of the United Kingdom (465,000), France (430,000) and Canada (300,000). Brazil falls into 9th place (165,000) just ahead of South Korea (160,000). Further down in the ranking, countries show high potential in terms of clientele for the luxury segment with growth rates that already give them the status of privileged supply markets, such as Hong Kong (+35% growth in the size of the wealthy population), India (+22%), Indonesia, Australia, New Zealand and Thailand.... Which show double-digit growth.More long-term perspectives, according to Capgemini and Banque Royale du Canada, show increased weight for Asia-Pacific. By 2015, the cumulated fortunes of the HNWIs will surpass 55 trillion dollars (40,000 thousand million euros), of which 16 trillion dollars are in the Asia-Pacific region (12,000 thousand million euros), making it surpass North America. Europe continues to battle with economic restructuring that upsetting its level of growth and the shortfalls in the Southern hemisphere. And yet, the severe measures taken by the governments in power are stabilizing the situation and reinforcing the strength of the euro.
The steady growth in the number of wealthy individuals and the emergence of a middle class with high salaries in many emerging economies offer strong stimulation for international travel. Even more than for the most modest populations, the desire to experience the culture and traditions of top destinations around the world is very strong among "nouveaux riches" populations. Even if the development of intra-regional travel feeds most of the growth in the number of international tourists, the economic and cultural capitals in the West benefit from an enormous advantage in terms of appeal: Paris, London, Rome, Berlin, New York, Sydney,... take additional market shares that widen the gap with secondary cities and justify the constant arrival of a new luxury hotel supply. This does not include the race to develop hotels in new destinations such as Rio de Janeiro, Shanghai, Dubai, Abu Dhabi or Doha.
That is to say that developers of groups specialized in the luxury segment have their work cut out for them and projects in their pipelines.
Luxury groups' pipelines are targeting all continents
As far as Anglo-Saxon groups are concerned, Fairmont Raffles Hotels International announces in an interview with Jennifer Fox, International President of the group, a development plan that will add 50% capacity to its current offer in five years, with a priority for major metropolises outside the North American continent: in Europe, like Paris, Rome, London, Barcelona, Milan and Frankfurt; in Asia, towards Hong Kong, Kuala Lumpur and secondary cities in China; as well as in the Middle East and Africa with a focus on Doha and Johannesburg. The group has especially reinforced its teams in Asia with the nomination of two vice-presidents Gao Zhi Xiong for China and Jeff Tisdal for the development of a mixed-use complex in the region.
The Four Seasons Hotels & Resorts, meanwhile, currently has 37 new properties under development, following the recent opening of the Shenzen complex near the new conference centre. The forthcoming openings are scheduled in the Middle East where works are being completed for the region’s first resort in Dubai on Jumeirah Beach. Other worksites are underway in Bahrain Bay (2014), Casablanca (2014), Abu Dhabi on Al Maryah Island, in Oman, Kuwait City, Jeddah and Sharm El Sheikh. In Europe, the group recently opened the Lion Palace in St-Petersburg, to be followed next year by Moscow (2014) and Vienna (2015). The Four Seasons Hotel Madrid will be part of the Canalejas project in the Spanish capital. On developers’ to-do lists also figure Bangalore in India, Johannesburg in South Africa, but also New York City, a resort in Orlando near Walt Disney World and the Four Seasons Hotel Sao Paolo in Brazil in the Parque de Cidade complex. Thirty or so other projects are already under consideration for after 2016. In a recent televised interview, Isadore Sharpe, the founding president of the group and 5% shareholder, indicated that the group’s ambition had compounded under the “friendly pressure” of its two reference shareholders, Bill Gates and Prince Al Waleed, to aim at a goal of 150 to 200 hotels under the Four Seasons banner. It is symptomatic that the group’s new general manager, who took up the reins after the departure of Kathleen Taylor and 24 years of good and loyal service, hails from real estate investment funds. Alan Smith is the former boss of Prudential Real Estate Investors and it is now his goal to lead fast growth, drawing on his experience and address book of proprietors.
Ritz Carlton, the luxury branch of the group Marriott International also has a symbolic goal: 100 hotels before 2016. Developers are around the world, from Morocco to Japan, from Israel to India. Hervé Humler, President and Chief Operating Officer put the focus on projects in Asia and the Middle East. The year 2013 began with three openings in Vienna, Puerto Rico and Abu Dhabi, followed before the end of the year by two properties in China in Chengdu and Tianjin, a Ritz Carlton in Aruba in the Caribbean and three openings in new countries: Herzliya in Israel, Almaty in Kazakhstan and Bangalore in India. Development does not stop there as 2014 will be marked by a record number of openings: Kyoto, Japan; Nanjing, China; Rabat, Morocco; Cairo, Egypt; Manesar, India; and Bali, Indonesia. For 2015, the plan calls for new resorts in Cabo San Lucas, Mexico; Muscat, Oman; Bali, Indonesia and properties in Ho Chi Minh City in Vietnam; Tunis in Tunisia and Haikou in China. Some hotels in Canada, Israel and Kazakhstan will also have a Ritz Carlton Residences program. This project has been very successful with wealthy clients who prefer long stays, or even a primary residence with hotel service.
Starwood Hotels regularly announces its desire to double the presence of its luxury brands St. Regis, W and the Luxury Collection in emerging markets. China is naturally a priority with rapidly growing demand in the luxury hotel category. W Hotels is one of the group’s favorites among trendy clientele. The brand is already present in Guangzhou and will soon be in Beijing and Shanghai. In the development plan at St. Regis, Starwood’s very upscale product, which includes 17 projects in the pipeline, China is well positioned with Beijing, Shenzhen and Sanya completemented by the arrival of the brand Changsha, Chengdu, Lijiang, Qingshui Bay, Zhuhai and Nanjing. The Luxury Collection, meanwhile, will unfurl in Dalian, Hangzhou, Nanning, Xiamen, Nanjing and Suzhou. Needless to say, the project is ambitious. The same is true for Latin America, the other favorite territory of Starwood Hotels outside the United States. The group opened the Palacio del Inka, a member of the Luxury Collection in Cusco in Peru, it is getting stronger in Mexico where it already has 8 luxury hotels with a Luxury Collection in Guadalajara. Four new W Hotels will open in Latin America, including Bogota, Colombia (2014), Santa Fe, Mexico (2015) and Kanai Riviera Maya, as well as Panama City in 2016. St. Regis will also open in 2016 at Kanai Riviera Maya, and then Buenos Aires and the Bermudas, and still further in Dubai, Amman and Cairo, and in Kuala Lumpur.
More modestly, but with the same logic of groups like IHG or Hilton Worldwide who favor their luxury brands: InterContinental opened a second establishment in London and the brand is now present in Marseille and soon in Lyon. The Chinese line HueLuxe is rapidly being deployed on the continent. For its part, Waldorf-Astoria is gaining members to its network. Park Hyatt and Andaz are taking a break, but only after a rapid expansion.
Asian luxury groups are leaving their borders
Asian hotel groups have long since decided to leave their natural territory. First to accompany their international clients, then to minimize the risk of a regional economic downturn or a major crisis such as the SARS outbreak in 2003, the hotel groups are headed for Europe and the United States. The process is well underway and although the pace is slower than that of the Anglo-Saxon groups, Asian brands are finding their place in the big business cities. Projects for implantation are sometimes accompanied by massive investments because the asset strategy is still part of the culture of these groups.
Hong Kong & Shanghai Hotels, owner of the Peninsula brand, is now all the rage in the specialized press with spectacular locations. For five years, the site of the Peninsula Paris, avenue Kléber has been underway, funded by the Qatar sovereign wealth fund, with 20% participation from the Hong Kong group. 200 luxury rooms should welcome their first guests in spring 2014. People are also talking about the group in London. It announced the construction of a Peninsula near Buckingham Palace, overlooking Hyde Park, on a 6,100 m² plot in a mixed-use complex developed with Grosvenor, one of the biggest British developers. The CEO and son of the founder, Clement Kwok, confirmed the group's desire to be present in major European cities. Other projects are expected in the coming months.
The Shangri-La group has already taken the lead. In Europe, it has launched flagship projects with the transformation of the Prince Bonaparte mansion opposite the Eiffel Tower into a luxury hotel with 100 rooms. In London, the role is radically different, but equally spectacular, with 202 hotel rooms at the top of "The Shard of Glass", The Shard of Glass is an 87-storey tower in the new Docklands area, which opened before the end of the year. The pipeline currently includes thirty projects, mostly in Asia and especially in China, but with a desire to strengthen in other areas of the developing world. Doha will host two establishments in 2014, and two more will open in India between 2014 and 2015, and the group will mark its entry into Rome in 2017.
The third actor in the Chinese trilogy, the Mandarin Oriental group, has multiple announcements. Already very present in Europe, in London, Munich, Barcelona, Prague, Geneva and Paris… It is reinforcing its presence with coming openings in Milan and particularly Moscow for the middle of next year. Taking advantage of the opportunity to develop in a historic 18th century mansion just steps away from Red Square, Mandarin Oriental is relying on investor Unicor Management Co to manage a 240-room establishment in the heart of the Russian capital. Turkey is also in the works with the development of the Residences concept in Bodrum, on the Mediterranean Sea. Beyond Europe, it is continuing its coverage of major Chinese cities, Beijing and Chengdu, also addressing the Middle East with a first establishment in Doha, Qatar, with its Parisian partner.
Oberoi Hotels, one of the luxury hospitality leaders in India, has six projects under development, in its own country, but into newly conquered territories: Gurgaon and Hyderabad Cyber City are nearing completion with some delay, and several Oberoi establishments are scheduled in the Emirates in Business Bay in Dubai, in Abu Dhabi and Oman, as well as a hotel and residential complex in Marrakesh. Its eternal rival, Indian Hotels and its flagship brand Taj Hotels & Resorts is more moderate in its development. After the recent opening of Taj Palace in Marrakesh (a project which was abandoned by Mandarin Oriental), it is expecting two openings in India, a Taj hotel at the Mumbai airport and an Imperial Club by Taj concept in the downtown area of the Indian economic capital.
The primary luxury hotel operator in the Middle East, Jumeirah Hotels & Resorts, has long since left the Gulf through its presence in Europe in London, Frankfurt, Rome, Mallorca, Istanbul and Baku, but also in New York, China and the Maldives. It has just announced a management contract signing with a Russian developer for a 75-room hotel on the Nevsky Prospekt in St Petersburg and about 15 new developments are to come, partially in the Middle East (Egypt, Qatar, Jordan), but mostly in new Asian territories (China, Thailand, Indonesia), as well as the Caribbean.
Now part of the club of luxury brands, Sofitel of the Accor group has the wind in its sails. In a recent interview with Robert Gaymer-Jones, brand CEO, a new outlook was opened on how to quickly grow from 120 to 150 establishments under the Sofitel and So by Sofitel brands: “With about 15 So by Sofitel, we will be very visible in the cities that count. After the island of Mauritius with Kenzo and Bangkok with Christian Lacroix, we will open one in Singapore by Karl Lagerfeld. We would love to have one in Brazil, and another in Dubai. For the Sofitel brand, in Europe, we have two projects under construction in Moscow, one near Red Square, and the other in the business quarter; a new hotel in Kiev and a coming announcement in Berlin. We are also very happy to have won a bid on a superb establishment in Frankfurt against a known Asian group. We are also considering a project in Prague which shows a good level of activity. We are actively working on the United States where we hope to soon make an announcement and Latin America. China remains important to us, even with 18 establishments already in business. Each is a showcase for Chinese customers who are beginning to appreciate luxury hotels when they travel abroad. Finally, we should not have more than a dozen Sofitel Legend, which all have a very special character. We just signed a management contract for a Legend in Xian in China and we have some portfolios under consideration, but the opportunities are rare".
While more modest, other luxury groups are pursuing the same development pace, such as One & Only, Orient-Express, Aman Resorts, Dorchester Collection, Oetker Collection, Cheval Blanc…
If all of these openings are possible, it is because the investors are responding to the call of the developers.
Sovereign wealth funds and large fortunes are most common in transactions
With increasingly common Asset Light strategies, although there are still rare exceptions within Asian and Middle Eastern groups, the opening of new establishments is possible only with the support and confidence of investors. The good news for developers is that the money is available, fanned by the strong performance of the segment and the regular valuation of luxury real estate assets.
The game of Monopoly took that off in the mid-2000s was only slowed down by the financial crisis of 2009. The actors have changed in nature, now opportunistic investors, such as investment funds (REITs and Land Trusts) have left more room for SWFs seeking shelter investments and large personal fortunes, tempted by an industry that values the portfolio as much as the ego of its owner.
After a break in 2009 and 2010, the transactions market rebounded in 2011, recovering volumes close to 25 billion dollars annually on existing assets. Europe is still lagging behind, weighed down by the collapse of markets in the South, while in France, Germany and the United Kingdom, actors are more dynamic on upscale portfolios. The health of the real estate transactions market is a good indicator to encourage the creation of new supply. Project developers are meant to resell their assets - with added value expected - once the operation is on track. This is the typical case of the Mandarin Oriental Paris transfer, whose construction was funded by SFL, the subsidiary of a Spanish developer who sold it for 290 million euro less than two years after opening under Mandarin Oriental. Also in France, it is symptomatic that the Starwood Capital Group has completed the sale of the former Taittinger portfolio in favor of sovereign wealth funds of Qatar and the Saudi royal family. The creation of l’Apogée, the new Oetker group flagship in Courchevel, is the result of a private investment by Xavier Niel, a wealthy patron of the Free group. In London, Dublin, and Rome, the capital invested in luxury hotels comes from Indian industrial magnates, the Russian "nouveaux riches", the habitual Sultan of Brunei and Abu Dhabi sovereign fund, in search of Trophy Assets.
Since the cyclical downturn caused by the financial crisis of 2009 and maintained by sluggish growth in Western economies, the performance of the hotel sector is carried by the luxury segment in major capitals.
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