With the official visit of the American president Donald Trump that just came to an end and the resignation of Prime Minister Theresa May taking effect, the world is focused on the British capital. The time is right to point out that London harbours many wonders despite the cloud of Brexit. Among its treasures are the luxurious addresses that welcome stars and celebrities every year, palaces with legendary names as well as others whose reputation remains to be built. The luxury market is progressing well in the British capital, with growth proving to be increasingly dynamic from one year to the next. The arrival of new players blurs the contours of this well-established secular hotel business, and brings a new lease of life to this fleet, which is partly century-old.
A growing offer in recent years
In general, London's hotel industry has experienced very strong growth in recent years. Between 2008 and 2017, 874 additional hotels appeared: a 147% increase! The customer base more than doubled, from 594 hotels (all segments combined) in 2008 to 1,468 in 2017. Two spikes are noticeable in this growth: the first in 2011, in preparation for the Olympic Games the following year, in order to be able to welcome enough visitors, and the second in 2015.
The high-end hotel sector is the most remarkable segment in this evolution. First, it has the highest number of hotels over the entire period, with a total of 428 hotels in 2016. Secondly, it is the only market segment that did not decline in 2016, unlike the economy and the budget segments. As a result, it has been able to maintain good growth, almost doubling in number. It grew from 238 properties in 2008 to 428 in 2016, corresponding to a spectacular 79.8% increase in just eight years.
This evolution is all the more visible in terms of rooms. The luxury market far exceeds other categories in terms of the volume of rooms available on the London market. In 2008 it represented 49,163 rooms and in 2016 that figure was 72,814, representing a 1.48-fold increase. By way of comparison, the next largest segment is the budget segment with 26,293 rooms, which is less than half the number of the high-end luxury market, followed by the midscale hotel segment with 18,133 rooms and then the economy segment with 11,870 rooms.
A two-faceted supply?
At a time when digital is king, the Internet holds a prime position in the hotel ranking in markets where the palace "distinction" strictly speaking does not exist. These properties are prestigious five-star hotels and recognized for the excellence of their service by the consumer community. Sites such as TripAdvisor or Booking relay the information that helps undecided travelers to determine which property meets their needs and expectations.
In these instances, it is not so much a classification of brands but rather a census, with the Internet platform offering a multitude of options as desired. The only classification possible may be based on ratings provided by Internet users who have stayed there. Booking.com provides a list of the "The 10 Best Luxury Hotels in London". It includes 4- and 5-star establishments with very different characteristics. For example, there is the 5-star hotel The Ned in the centre, the boutique property of the Lansbury Heritage Hotel which is next to the citizenM London Shoreditch in Hackney or the ApartHotels Leman Locke in Whitechapel. It is a very heterogeneous list that does not correspond to the official definitions of luxury hotels. And yet, these establishments have received the best scores from travelers. Proof that expectations can vary widely.
We have identified a group of 29 luxury hotels in London, which properties are representative of the supply in this segment. Firstly, this is twice the number of Palaces in Paris, and it is more than the number of all such properties in France. The reason for this difference between the two capitals is two-fold. The first is real estate related. The British capital has a surface area of 1,572 km², or fifteen times that of Paris which is 105.4 km². This reality would be enough to justify the multiplication of this type of properties in London. The other explanation lies in the type of palace, a category that has a different meaning on each side of the Channel, as explained in the previous article. But in reality, the ratio would not be so important if unclassified properties in Paris were included.
Despite a relatively high availability of real estate, it is interesting to note that the majority of these luxury hotels do not have large volumes. Thus two thirds (20 properties) have fewer than 150 rooms and suites, and half even have fewer than a hundred. Only a small handful of hoteliers represent luxury accommodation behemoths, such as the renowned The Savoy (267 rooms and suites), Corinthia (341 rooms and suites), or The Langham, which holds the record in the list (380 rooms and suites).
There is also a correlation between the size and age of the hotel. The oldest units, such as The Langham (1865) considered by some to be the leading palace in Europe, Hotel Café Royal (1865), The Berkeley (1867), the Corinthia (1885) and The Savoy (1889) are all among the oldest and biggest luxury hotels in the city. These properties correspond, in fact, to the period when properties for luxury accommodations emerge concomitantly with the first tourists, as explained in H-ON's article about Parisian palaces. They constitute a sort of solid core for London's luxury hotel industry, a sure value achieved thanks to a more than a century-old reputation that has convinced personalities from Winston Churchill to Frank Sinatra to stay at the Savoy, and also the Trump to stay at the Corinthia during their official visit to London this last June 3 to 5.
At the opposite end of the spectrum, the most recent properties have a more reduced number of rooms and suites. For example 41 Hotel opened in 2000 with only thirty rooms, The Wellesley Knightsbridge (2012) has only a few more (36), the sumptuous 45 Park Lane (2011) has 45, while L’Oscar, the most recent (2018), has 39. There is also The Beaumont, an historic Art Deco building dating from 1926, that became a hotel just five years ago to reveal 73 rooms. Several of these instances have something in common: they are transformations of places into hotels, adresses that had a former vocation. The Oscar was thus once the British headquarters of the baptist church of Southampton Row; The Beaumont was originally a garage and The Lanesborough was used as a hospital, that was destroyed and rebuilt in 1927, to be taken over in 1991 by the group Rosewood Hotels & Resorts, which transformed it into a hotel. This therefore explains the limited number of rooms and suites, since these buildings were not designed as hotels from the outset. Particularly since as five-star hotels, they have rooms and suites with fairly extensive individual surface areas. This further reduces the number of rooms possible.
Demand that is essentially extra-European
The organisation promoting the island of Great Britain abroad, VisitBritain, has identified the main outbound markets for luxury tourism on the island. These are mainly non-European countries, coming from two regions, namely the Arabian Peninsula and Asia, from north to south.
When comparing the number of international tourist arrivals to their spending, the United States of America, China and Saudi Arabia are among the key markets for the luxury segment in the country. However, the American market has slowed down over the past ten years, with 5.038 million people coming to the United Kingdom in 2018 compared to more than 7 million in 2009. Tourists from China and Saudi Arabia continue to flock to the area. Chinese visitors have doubled in number over the past decade, from 200K to 561K arriving between 2009 and 2018. Tourists from the Gulf Kingdom increased from 182K to 243K over the same period.
From a strictly expenditure perspective, the list is somewhat different, evolving according to the duration, whether the expenditure is assessed on a per-stay or per night basis. Thus, the highest spending tourists come from the countries of the Arabian Peninsula, namely Bahrain, Kuwait, Saudi Arabia and Qatar. They reportedly spend more than £2,000 per stay, with up to £2,778 for visitors from Bahrain in 2017. Asia is the second most important region for sending "High Net Worth" visitors in the same year. Evaluated per trip, they come from China, Hong Kong and Thailand and spend between £1,500 and £1,700 per trip. Assessed per night during their stay, Japan and Taiwan are the only Asian countries in this top-7, with spending of GBP 142 and 139 per night respectively. At the top of the podium, Bahrain still leads with an average expenditure of GBP 225 per person per night, followed by Iceland, the only European country on this list, with GBP 222 per night, Kuwait with GBP 180, UAE with GBP 175 and finally Saudi Arabia in fifth place with average spending of GBP 157 per capita per night.
Between the Olympics and Brexit, performances are saw-toothed?
More specifically, London's upscale and Luxury hotel performances reveal an unsteady evolution in recent years. Three periods may be observed on the period 2008-2018. The first period is marked by the global financial crisis of 2008, which had a significant impact on London's hotel industry, including high-end and luxury hotels. Performance that year and the following year (2009) is down in all respects. Occupancy fell -5.1 points to 80.7% in 2008, causing RevPAR to fall -3.8% (€126.80 ex-VAT), despite the RevPAR being slightly "cushioned" by an artificial price increase (+2.3% or €157.20 ex-VAT). The downward trend has repercussions on the following year, when the average daily rate (ADR) also fell (-9.5% to 142.30€ ex-VAT) at the same time as the RevPAR (-7.1% to 117.80€ excluding VAT). Only the occupancy rate (OR) rose to 82.8% with a +2.1 point gain.
In 2010 a second period began, a period of growth, following the restructuring and modernization of the supply for the 2012 Olympics. London's upscale-luxury supply gained in occupancy (85.0%, up +2,2 points), it is especially in resources that it will have a record year: the ADR literally climbs +12.2% to reach 159.60€ ex-VAT, bringing the RevPAR to a record evolution of +15.2% to an estimated 135.70€ ex-VAT.
The year of the Olympic Games is marked by a visible deterrent effect even in the high-end segment, with tourists preferring to postpone their stay in London to avoid finding themselves in the middle of a crowded city. London thus loses visitors (OR of 82.6%, or -2.1 points) although the ADR (+4.3%) and RevPAR (+1.8%) pursued growth. The positive effect is mainly felt after the event, with a return of tourists (OR of 84.0%) in 2013. As a result of renewed tourist arrivals, the destination is becoming more popular, resulting in lower prices. The average daily rate dropped from €185.10 in 2012 to €181.10 (ex-VAT) in 2013, and the RevPAR from €152.90 to €152.10 (ex-VAT). The following years would be relatively stable. However, the occupancy rate fluctuated sharply while the ADR continued to grow, maintaining positive growth in revenue per available room. The year 2018 ended the period with very good performances, both for the OR (84.1%, up +1.7 pts), ADR (204.50€ ex-VAT, up +1.8%) and RevPAR (172.00€ ex-VAT, up +3.9%) in line with all the other European destinations.
Globally, these oscillating results over the past five years reflect the political situation brought on by Brexit. The latter, announced three years ago following the referendum on the United Kingdom's membership to the European Union on June 23, 2016, now more than ever casts a veil of uncertainty over the near future. This portends major challenges for the London luxury hotel industry if it wishes to retain its European clientele.
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