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Analysis

The rebound of France's hotel supply confirmed in 2015

For the second consecutive year, the global hotel supply in France is up by +2.3%, with a growth rate similar to the previous year. After 6 years of shrinking, the rebound begun last year was thus confirmed, particularly for the unbranded hotel industry, which was driven by boutique hotels and re-openings following renovations and updates for compliancy. Chain hotels, meanwhile, continue to grow at a moderate rate. While the French hotel supply has not climbed back to its previous peak just before the crisis in 2009 and the new hotel standards led to a restructuring of the sector, but we are beginning to head in that direction again. The upscale and midscale are the most dynamic segments in terms of supply growth, illustrating the repositioning that is underway.

The year 2014 had already brought a glimmer of hope after years of inexorable crumbling of the global hotel supply in France. Initially, circumstances were not very favorable to dynamic growth in supply: the shock of 2009 and the end of bank financing took a while to be digested; increases in TVA and the implementation of new hotel standards in France precipitated the closing of properties that did not try or were unable to renovate to meet today's needs and tastes. When it dropped below 635,000 rooms on January 1, 2014, the supply had reached its lowest level in the decade. But afterward, the horizon cleared as new openings popped up throughout 2014, in both the unbranded category and hotel chains.

The movement continued and even strengthened over the course of 2015 so that as of January 1, 2016, France had reached a global supply of 663,496 rooms, up by 2.3% across the year. It is particularly good news since the hotel industry is currently questioning the mid and even short-term impact of all the "shared" offers that have begun to compete increasingly directly with more "classic" forms of commercial accommodations.



Change in supply over the last 10 years



In an interview with Hospitality ON, Pierre-Frédéric Roulot, president of Louvre Hotels Group, offers an initial response by evoking the persistent difference between growth in tourist demand worldwide and the growth of the hotel supply. Major cities with an international reach still have a shortage of supply and the market is not yet saturated. The shared supply stepped in to fill the void and their development depends on the lack of response from hotel investors. Fortunately, the proactive policy of some municipalities has contributed to relaunching investment, such as the freeing up of land for building in areas around the capital, plans to develop the hotel supply in regional capitals such as Lyon, Marseille and Bordeaux. The new supply of chain hotels is larger overall, with fewer, but bigger, projects.

Another explanation for the relaunch is the construction calendar adopted by many property owners in city centers. The temporary closings for renovations that followed modernization requirements are coming to an end, resulting in the return of boutique hotels to the market place that better correspond to the expectations of well-to-do clientele seeking real experiences with a more contemporary aura. This hotel product that has the advantage of offering architectural flexibility, particularly to renovate and reposition outdated old hotels and even to convert buildings that were not originally hotels. It is thus revealing to observe that the two most dynamic segments are the unbranded upscale (+8.4%) and midscale (+4.4%) segments, for a net total of some 6,500 rooms, often corresponding to the "boutique" supply.

The third contributor to supply growth is also the end of the hemorrhage among small hotel structures, due to a lack of fighters. The "survivors" are the ones that had a solid business model and the net result is not yet positive since growth is no longer affected by a high volume of closings at the same time as expansions and creations of properties.

In addition to the renewed growth of the global supply, it is also noteworthy that the dynamism of the unbranded hotel segment has been reconfirmed with the net addition of 9,000 new rooms to its supply in 2015 (10,603 rooms net in 2014) while the branded hotel chain supply grew by "only" 6,200 rooms net (2,900 rooms net in 2014). This higher numeric volume raises the question as to the choice made by owner investors, particularly since most of the corporate chain supply now consists of franchises and management contracts. It is all a question of the added value of a brand within an urban universe where the distribution through OTAs offers an alternative and is directly compared to the management fees or franchise paid to a hotel group. This will be a recurring theme at franchisee meetings and a round table scheduled for the next Global Lodging Forum.



Growth rate in room supply by hotel type - 2016/2015, January 1



On the other hand, the unbranded budget hotel supply is barely growing (+1.4%) and the economy 1-and 2-star supply even less so (+1.1%). The latter category, despite improvement in the French supply following the development of new standards, continues to regroup most of the French supply, with nearly half of the unbranded supply.

Hotel chains progress in all categories, but at a less steady rate than the unbranded hotel industry (+2.0% versus +2.7%) with its two "high points" in the upscale (+4.4%) and the budget segment (+2.3%). Growth in the budget segment has been steady at hotel chains in recent years, supported by the dynamism of growth engines such as B&B Hotels. Renewed growth on the upscale segment arrive came after a year's stagnation marked by temporary closings of several iconic luxury properties, and the increase should continue in the years to come in light of openings that are currently in the pipeline. On the other hand, the midscale is no longer popular among hotel chain developers, while independent hotels are accelerating growth.

This analysis is drawn from the "European Hotel Report 2015/2016", which will soon be published by Hospitality ON. It includes detailed data of the French hotel supply in 2016 (by range, segment, group, chain...) and the development of results in 2015 (by new region, range ...)





Methodology: The database at MKG HotelCompset includes several groups in the "Chain Hotel" category that were previously allocated to consortia, particularly the Société Européenne d'Hôtellerie (SEH) and its brands Qualys-Hôtel, Inter-Hôtel, Petit-Déj-Hôtel and Relais du Silence, due to its status as a cooperative and principal of exclusive membership (like Best Western), and since the group is now developing hotel projects through its subsidiaries. The variations specific to corporate chains and consortia and independents are calculated according to the "pro-forma" supply in 2016 and 2015; changes thus correspond to the real growth of each category.

The corporate chain supply accounts for an increasing share of the global supply (48.1% on January 1, 2016 versus 45.7% on January 1, 2015 with the previous subdivision). And yet, with greater discipline in the consortia and the progressive adoption of exclusive membership, the boundary is increasingly blurred between these networks and chain brands. France's global supply may now be considered balanced between properties bearing no brand on their banner, but they are sometimes affiliated with sales networks, and properties that clearly display an exclusive brand with a central booking center and widespread advertising.

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