The luxury hotel sector has the wind in its sails now. Segmentation is becoming more intense as clientele diversify their interests from the exceptional palace to the more relaxed atmosphere of boutique hotels. The consequence of this potentially glorious future: heightened competition.
The Parisian luxury hotel industry is in fine fettle overall. The occupancy rate at the six most renowned properties in the French capital - Bristol, Crillon, Four Seasons George V, Meurice, Plaza Athénée, Ritz – is doing well, even if there are perceptible differences. And the current year began under better auspices for the palaces. “We should attain an occupancy rate of 84- 85% with growth in the average daily rate by 7 to 8%, between 740 and 750 euros,” forecasts Didier Le Calvez, general manager of the Four Seasons George V, “and I have the feeling that the market is very good for everyone”. The Plaza Athénée offers confirmation of this score with a 78% occupancy rate in 2005 for an average daily rate of 650 euros, and should improve its results in 2006. These favourable results are the fruit of constant growth despite the post 9-11 crisis. “2002 was very good with an occupancy rate of 82%, while 2003 was weaker at 79%. It took off again in 2004 with 81% and 2005 with 82%."Rocco Forte remains dubious: "I’m not sure we can achieve the same average daily rates on the Left Bank. The clientele is different." Yves Marchal doesn’t contradict this: "there are no offices. The American business clientele that are the livelihood of hotels from November to May risk not answering at roll-call. In the summer, it will be impossible to attract the lucrative Middle Eastern clientele". And if Paris was not built in a day, a palace too must be built over time. No less than "fifty years" are necessary according to the director of the Plaza. So the next time to meet is in 2050. Then the exclusive club of Parisian palaces will have admitted new members. Which ones? It is for you to guess. And what might happen on Seine’s Left Bank has yet to be seen.This excellent performance clarifies Didier Le Calvez’s remark that “Paris is a city blessed by the gods of the hotel industry”. Trade fairs take place year round each month, as do sports events such as Roland Garros. Its central geographic location in Western Europe is excellent. And Paris benefits, regardless of what anyone might say, from a very fine image internationally. Upscale boutiques and restaurants are legion in this Mecca of fashion and gastronomy. Consequently: there is no noteworthy drop in activity. The only thing the director at the George V regrets is that Paris is not very well commercialized for yearend celebrations. “New York posts no vacancies from Thanksgiving to Christmas. The same is true for London.”But in comparison with these great metropolises, Paris’s luxury hotels distinguish themselves first and foremost by their limited offer in the prestige range. Six hotels are at the top of the ladder with a total of just over 1,000 rooms. This is a sign of weakness or an anomaly that needs to be made up for at a time when New York or London have many more very upmarket properties and in Asia each Mandarin, Peninsula or Shangri-La easily has more than 300 rooms. The nature of Parisian real estate, the impossibility of building tall properties, as well as the limitations related to the conversion or renovation of historic buildings are key reasons for this market’s limitations.Another explanation comes from the past. All these properties opened sixty years ago or more. François Delahaye, General manager of the Plaza Athénée, explains that a hotel cannot declare itself a palace at whim: “While the palace is a very high luxury hotel, it must also have a history”. According to his approach, “one-third of the price of the room is due to the product itself, the property’s quality and its location. Another third is justified by the quality of the service. The last third is the ego”, that of the client who wishes to be associated with a reputation, an emblem. These hotels have accommodated all the crowned heads, heads of state and stars of all kinds from the past and present. Bedding down like Chanel or Hemingway in a place that is as mythical as the Ritz flatters the visitor’s ego. And such luxury has a price tag. Consequently: today these properties have a certain lead on the competition in terms of average daily rates that fluctuate between 600 and 700 euros. These rates are 25% higher than those of the best performing outsiders. Even if, as per the confession of François Delahaye, also Chief Operating Officer of the Dorchester group, owner of the Hotel Meurice, “this property reports lower performance with average daily rates at 500 euros and a lower occupancy rate”. In order to maintain its ranking, a hotel cannot allow itself to be outpaced in terms of communication and glamour.According to Arnaud de Saint-Exupéry, Marketing director Hyatt France, this difference in average daily rates may be explained first and foremost by the inventory at these properties. “They have above all a high percentage of suites, while they represent only 15% of the supply at the Park Hyatt". The George V has 60 suites to 180 rooms, the Plaza Athenée 80 to 188, the Crillon 44 suites and luxury apartments to 103 rooms. “It affects the ratios,” remarks Didier Le Calvez. This type of product meets a real demand from palace clientele: artists, athletes, heads of State and Government, directors of major corporations. Even the biggest among them easily finds takers. At the Plaza Athénée, the Royal Suite, the biggest in Paris at 500 square metres, posts no vacancy for much of the year. “Its crazy. People fight over it, organizing their stays pending on its availability,” François Delahaye remarks, almost astounded. Opened barely a year ago, its rate rose from 10,000 to 15,000 euros. Enough to rapidly absorb the 1.8 million investment spent to furnish it.“There are six hotels that stand out,” recognizes Didier Le Calvez, “but others are not so far behind. Costes can be more expensive than we are”. In recent years, many hotels opened in Paris in order to try to take advantage of the renewal of demand for upscale properties. These hotels tried to play on their difference since they are unable to rival with the legitimacy of the Club of Six: trendy hotels such as Costes and Murano, charming hotels such as the Sezz, the 123 or the Petit Moulin decorated by Christian Lacroix. These hotels sometimes play on the same market and allow Paris to offer a diversified hotel supply. “These hotels enrich the city’s inventory. Paris was behind in this regard,” remarks Arnaud de Saint- Exupéry.In Paris, the competition attacks the palaces on all fronts: property of the Scotsman group which was recently bought by the Saoud MBI, the Hôtel de la Trémoille is the archetypal trendy boutique hotel. Two steps away from the Champs-Elysées, the Lancaster, taken over and renovated by the group of Grace Léo Andrieu, has created a fine reputation for itself, even attracting the chef Michel Troisgros. “We are a "mini-palace" with all the services of a palace in a small size property,” explains Florence Dubois, Sales and Marketing manager at GLA. “We cohabit very well with the palaces. There really is room for everyone. Our clients come to us for the unique character of this Parisian address, our atmosphere of a Parisian pied-à-terre.”Another aforementioned competitor: the Hyatt came to snub the Ritz, just a stone’s throw away from Place Vendôme, with modern positioning. Right from its opening in 2002, it presented itself as “the first contemporary palace”. According to its Marketing director, it is already a success: “we have the same customer profile. Our clients previously may have stayed at the George V or the Ritz”. While the George V was elected by Institutional Investors as the Best hotel in the world, the Park Hyatt has invited itself within this ranking by becoming the Best hotel in Europe in 2005.While publicity insists on this recognition of best clients, professional observers are nonetheless noticing that the Park Hyatt, like other rivals, may only lay claim to standing as a palace in terms of financial results..Soon this elite circle that is the reserve of ultimate prestige hotels will have another member. Or at least this is what Dominique Desseigne, who has led his project for Fouquet’s Barrière for seven years, anticipates in any case. The president of the Barrière group has high aspirations and is already settling into this market: “we are aiming for an average daily rate of 750 euros at cruising speed.” The president of the group’s supervisory board has a few reasons to believe in the success of his project. First of all thanks to the property’s exceptional location on the corner of the Champs- Elysées and Avenue George V, across the street from what he refers to as the "most beautiful luxury boutique in the world": Louis Vuitton. Not to mention long and arduous work to rewrite the charter of French-style upmarket service with an approach that is as tailored as the best Asian palaces.And this brings us to Asia which is has announced its arrival on the market in 2008 with the Shangri-La. “We had been looking at Paris for some time,” admits Martin Waechter, Chief marketing officer. The Asian group will soon transform the old residence of Prince Roland Bonaparte, located at 10 Avenue d’Iéna, not far from the Place du Trocadéro. This location is just outside the luxurious Golden Triangle demarcated by the Champs-Elysées, Avenue George V and Avenue Montaigne. “Such a position is not a disadvantage,” continues Martin Waechter, although it gives rise to diverging opinions from market leaders. “I am a bit sceptical. At 1,000 euros the suite, you want to be able to do everything on foot,” resumes François Delahaye. “The location is not ideal,” according to Antoine de Saint-Exupéry, "but Shangri-La has the strength of a well-known brand in Asia". Which Martin Waechter confirms: “we will bring a new clientele to Paris”.A strong location for Fouquet’s Barrière, commercial strength targeting fast growing Asian clientele for Shangri-La: these two projects have fine arguments in addition to quality of service and the product itself to start playing with the very big boys. Will other new actors enter the adventure as well? According to Didier Le Calvez, "the Parisian market is able to absorb the opening of a grand hotel in two years. We need new addresses. It can only be good for Paris”. But not everyone is of the same opinion. Yves Marchal, director France of Jones Lang LaSalle Hotels: "the market must first absorb 25% of the new supply and understand that other existing hotels could reposition themselves in the more upmarket range".And who could be interested? Mandarin Oriental? The group set foot in Paris once before with the management of the Royal Monceau, but unfortunately had to pack its bags due to differing points of view with the hotel’s owner. Edouard Ettedgui nonetheless does not preclude returning sometime in the future: "we want to be in Paris. This city is essential for a brand. We are keeping a look out for the right opportunity". Starwood Hotels? With the Prince de Galles, next door to the George V, the group owns a renowned property. But for the moment it does not look like it will transform this property that is a few steps behind its prestigious neighbour. Whereas luxury hotels are on the rise all around the world, other groups that are in full growth could also be interested in the City of Light, such as Fairmont, Taj or Jumeirah...But more importantly than “who” might set up shop in Paris is knowing “where”? The entry barrier is particularly high. "Location is key in all capitals. It’s what clients look for first," emphasizes Arnaud de Saint-Exupéry. The area surrounding the Place Vendôme and the Golden Triangle are historic in regard to luxury hotels. A significant problem: the Golden Triangle is relatively congested considering the initial financial investment required. "The location is extremely expensive. The return on investment makes the viability of the project risky. There is no room for blunders. Peninsula lost its courage," recalls François Delahaye.In these neighbourhoods, converting buildings is a more likely solution than taking over an existing hotel, but it is economically risky since the initial investment can amount to up to 1.4 or even 1.5 million euros per room. "Each time I come to Paris, I hope I’ll be able to announce an opening,” explains Rocco Forte. A desire that is still unfulfilled for the president of the eponymous group who is actively looking at neighbourhoods "that could justify the high average daily rates” without finding that rare pearl.Like the option adopted by Shangri-La, Didier Le Calvez also sees “outlying” options in the 16th district or, across the Seine, in the 6th and 7th district. The Left Bank of the Seine still does not have hotels that combine size and very high luxury. One obvious, legitimate candidate for the title of numberone palace on the Left Bank is the celebrated property owned by Louvre Hotels, the Lutetia. The policy of its owner, the investor Starwood Capital, remains to be seen with respect to its portfolio of recently acquired upmarket hotels.Rocco Forte remains dubious: "I’m not sure we can achieve the same average daily rates on the Left Bank. The clientele is different." Yves Marchal doesn’t contradict this: "there are no offices. The American business clientele that are the livelihood of hotels from November to May risk not answering at roll-call. In the summer, it will be impossible to attract the lucrative Middle Eastern clientele". And if Paris was not built in a day, a palace too must be built over time. No less than "fifty years" are necessary according to the director of the Plaza. So the next time to meet is in 2050. Then the exclusive club of Parisian palaces will have admitted new members. Which ones? It is for you to guess. And what might happen on Seine’s Left Bank has yet to be seen.
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