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Paris's palaces: a soon to be saturated market?

​​​​​​​The palace is a myth, around the world, through the ages, and even on the silver screen with Death in Venice and The Grand Budapest Hotel. Today, there are 25 properties in France that bear this title as a result of hard work and a long certification process. Worldwide there are no exact figures, as this "protected" appellation is a French specificity. But one thing is certain: the palace represents the most precious thing in the hotel business, marking the codes of luxury with very specific tacit standards to meet an increasingly sophisticated clientele with protean needs. But the proliferation of these properties begs the question as to whether or not the Paris market may be heading towards saturation in the coming years.

A short story about these places that are infused with history

Since time immemorial, the term palace has been established as the ultimate accommodation for high society. Its name would come from Rome, or more precisely from Mount Palatine, the "palatium", where the rich residences of the most illustrious Romans were located. In the 19th century, the term palace began to be used for temporary residences for the first European tourists, those rich bourgeois who liked to enjoy the benefits of the Côte d'Azur climate in Winter, or even the entertaining Parisian life. Pierre Gouirand, former Director of Hôtel Westminster and former President of the Syndicat des Hôteliers de Nice-Côte d'Azur, explains: "It was necessary to build luxury hotels on the Côte d'Azur and in Paris to accommodate this rich clientele used to a sumptuous life. The word was then anglicized from the French "palais" to "palace" because of "Anglomania". This is how the Promenade des Anglais was born in Nice, together with with the emblematic Hotel Negresco (1912), named after its founder of Romanian origin.These are the among the only remains of that glorious period.

Meanwhile, in Paris, Le Meurice, which has the privilege of being the oldest of the capital's palaces, was inaugurated in 1835 at its current address. Louis-Augustin Meurice, its founder and formerly postmaster in Calais, opened a first property at 223 rue Saint-Honoré (before moving it to 228 rue de Rivoli) for mainly English customers, thus creating the concept of a concierge service with bilingual staff. Observing an opportunity in this market, César Ritz, a wealthy Swiss entrepreneur, followed suit and opened the eponymous hotel in 1898, after having acquired expertise as a director at the Grand Hotel de Monte-Carlo since 1881. He would join forces with the famous chef Auguste Escoffier, and this led to two innovations: first of all, the Ritz introduced gastronomy into the hotel business, which attracted the ladies of the bourgeoisie outside their apartments for dinner. The palace would introduce major innovations in terms of domestic comfort: electricity, telephone, bathroom with toilet... The hotel thus lent its name to the word "ritzy" to our neighbors across the Channel, where it would be used to refer to al that is most precious and expensive.

In the 20th century, palaces became particularly famous for the historical personalities they housed, such as Ernest Hemingway or Coco Chanel at the Ritz. The artist Salvador Dali appreciated the Meurice, where he was "the only customer allowed to stain the walls with sprays of paint, or to welcome tamed cheetahs into his suite" he even asked "the staff to throw coins into the street so that he could "roll in gold"" (source: France Culture). Coluche, meanwhile, set his sights on the Lutetia where he stayed  after his divorce... The palaces would thus become the refuge of celebrities.

So, what are French palaces today?

The distinction of being called Palace is the most prestigious label in the French hotel industry and it isn't even ten years old. Created in 2010, its purpose is to promote luxury properties on a national and international scale that represent "excellence and perfection, luxury and timelessness". Such properties must first have five-star classification in order to be able to apply for the title. In addition to that, they must reveal exceptional characteristics, such as geographic location, historic interest or even personalized service. There are several criteria for eligibility: presence of a spa, multilingual personnel, concierge service…

25 properties in France have received the distinguished title of palace in France. Most are in Paris (11). But they are also located in coastal areas such as the French Riviera (6) the Caribbean (Saint-Barthélemy), and also in the Southwest (3) and the South East (5).

Below are the details of the different Parisian addresses based on their number of rooms and suites. First of all, there are large disparities between the capacity of institutions. There are small structures such as La Réserve Paris Hotel and Spa with 40 rooms. But there are also "super palaces" with more than 240 rooms such as the Four Seasons Hotel George V. Similarly, the proportion or rooms to suites varies greatly. This latter category sometimes corresponds to more than half of the property, as is the case at La Réserve Paris, or almost half as at Bristol. For others, such as the Peninsula Paris or Hotel Plaza Athénée, suites do not even represent one fifth of the total capacity. Between these two "extremes" there is the one third (suites) - two thirds (rooms) distribution as at the Mandarin Oriental, the Crillon Hotel or at the Shangri-La. In other words, the palace category is very diversified so that there is no standard model, reflecting the uniqueness of each one. Only the presence of a certain number of services provided by irreproachable staff characterizes the identity of the palace, in addition to the exceptional nature that the property must demonstrate.


The French label: a protected appellation that is difficult to obtain

Very standardized, we could almost talk about an Appellation d'Origine Contrôlée (AOC). The French case is indeed unique, because it is the subject of a real distinction that was created following the reform of the hotel industry ten years ago, on July 22, 2009. On this occasion, the criteria were modernized and the procedure for obtaining "new stars" was modified. The 5-star category was thus created. Later, in order to bring an additional category, the "palaces" distinction emerged, "allowing the recognition of hotels with exceptional characteristics" (Atout France).

The "Palace" distinction is now described as an appellation given to a five-star property that meets a certain number of criteria ( customized service, spa, multilingual staff, etc.), accompanied by an exceptional character such as its geographical location, historical, aesthetic and/or heritage interest. 

This designation is in accordance with a strategy to promote certain five-star units in the French hotel sector on a domestic and international scale, since "more generally, it must contribute to the influence of French culture and the appeal of the French destination" (Atout France). 

The award of the Distinction is subject to a two-stage procedure. The first consists of an "instruction phase" led by Atout France, where the candidate hotel's file is examined in detail. Eligibility criteria are scrupulously verified. At the end of this stage, the analysis is carried out by a commission, which qualitatively evaluates the characteristics of the property, namely its history, its aesthetic aspect, the quality of its staff, the level of its gourmet restaurant, its CSR policy...

The commission is composed of the deputy director of tourism, the general manager of the organization (mentioned in article L. 141-2 of the tourism code), and various professionals who demonstrate a real expertise on the subject. The famous elected representatives, who may be up to twelve, are appointed by the Minister of Tourism for a period of three years, renewable once. These must include three professionals from the world of literature, the arts and culture, one from the media, two from the business world and two "qualified persons representing international clients" (article 4 of the Decree of October 3, 2014 on the "Palace distinction"). One person will be assigned the additional function of chairperson of the committee and a second will be assigned the responsibility of being his or her deputy.

Finally, it should be understood that there are also restrictions on the award of the label, even if the establishment meets all the required criteria. First, the hotel must have been operating for at least one year in the case of an ex-nihilo creation, or six months if it concerns a renovation, to ensure the "guarantee as to the permanence of the excellence of the service and the services offered" (art. 2 of the Decree of October 3, 2004). Also the rooms must have a minimum surface area of 26m² (including sanitary facilities) for single rooms and 30m² for double rooms, although there is an exception allowing just 10% of the rooms in the establishment to be below one of these two thresholds. Finally, the award, which is issued by the Minister in charge of tourism after a decision by the commission, is not permanent: it must be renewed every five years (art. 6 of the Decree).

A distinction leading to dissension

Some establishments believe this label is of little interest. Indeed, historic and incomparably renowned hotels such as the Ritz have not (re)applied for the label (the first application in 2012 having been rejected). Christian Boyens, director of the hotel, justified the absence of this distinction by explaining that the Ritz was "a private residence", in a context "where Paris has a phenomenal offer of palaces, the Ritz will not be better than these hotels, just different". A subtle way to differentiate itself from the competition.

But others did not succeed in obtaining the distinction either, such as the Lutetia in Saint-Germain-Les-Prés, which hosted personalities like Coluche. That said, the latter can be explained by the fact that the property has been under renovation for four years and only reopened in July 2018, less than a year ago. According to Atout France's regulations, however, the hotel must have been open for at least six months in the context of a renovation in order to be able to obtain the label. There may have been too little time to act on it so far.

Atout France's list is therefore far from exhaustive when it comes to the excellence of the French hotel industry, even if it offers excellent indications for this sector. Therefore, the interest is not so much to provide a clear and precise list of the best properties in the country, but rather to guarantee quality through the drastic criteria that must be met.

The upscale market in Paris, a segment that is losing steam

The capital's palaces fall into a fairly favorable context where the Parisian marketplace has been very resilient in recent years. The occupancy rate has increased almost every year, with the exception of 2016, the year following the tragic terrorist attacks of November 2015. In 2017, the return of tourists to the capital brought growth back up, with a record occupancy rate up +6.3 points. In the same year, RevPAR was also significantly boosted, with an +8.6% increase despite being unable to raise the average daily rate, which was down very slightly (-0.1%). 

A more detailed analysis by segment reveals remarkable performances for the high-end luxury hotel sector. First, while average daily rates were down for the market on the whole, the aforementioned segment grew by +0.5% in 2017. In addition, the occupancy rate increased by 5.1 points over the same period. These two very positive figures caused the RevPAR to jump by +7.6%. High-end and luxury hotels therefore outperformed in 2017. Previous years have also seen very good results. Even in 2016, which is characterized by a decline in the overall hotel supply, the high-end luxury hotel sector was able to absorb this decline and revealed less significant losses: the average daily rate fell by -6.7% (versus -7.1% for Paris in general), the RevPAR by -13.6% (versus -14.3%) and occupancy fell by -5.8 points (versus -6.0 for all Parisian hotels).

As for the share of high-end luxury establishments in the overall supply, this category accounted for 22.4% of the capital's hotel inventory in 1998. Today, this segment represents more than a quarter (26.5%) of the total number of rooms. It shows a good growth rate, which has been faster than that of the rest of the Parisian supply in general. 

This is confirmed by the figures detailing the evolution of supply over the last twenty years. The luxury segment is the most dynamic and ranks first in terms of growth in its development in 2018 (+0.07%), ahead of the budget segment (+0.03%). Over the 2017/2018 period alone, it increased by 17 properties, while the total supply across all categories combined fell by 13 units, for a negative trend (-0.01%), driven down by the Economy and Midscale segments (-1.04%). As a result, the high-end luxury hotel business brings new units to Paris, and also stabilizes the growth of the Paris market with -0.01% change, thanks to some help from the budget segment (+0.03%).   

However, this increase must be qualified if we look at hotel development from the point of view of rooms. Over the 2017/2018 period, the evolution of the high-end luxury supply slowed by -0.04%, recording 955 rooms in less than a year from one year to the next. But the downward trend already goes back a few years. Thus, for eight years now, the high-end hotel category has oscillated between 21 and 23K rooms, with a drop to 20,991 in 2014. In that year, the segment fell by -0.01%. Three years later, its growth is back in the red again, with a more significant decrease: -0.02% or 564 fewer properties. On the other hand, the years 2015 and 2016 were particularly positive with strong growth: respectively +0.03% and even +0.06%. More generally, the most dynamic years are in the past. There is therefore a beginning of a slowdown that is beginning to appear on this market in the French capital. To be continued in the coming years.

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