An overview of the European market

In Europe, there is a little slow-down in RevPAR performance in 2018. It was stronger in 2017. This slow-down is particularly strong in Spain which had experienced a strong “remontada” since 2014.

Italy is behind its European competitors. The impact of terrorist attacks in France is clearly visible, as it is in Brussels for Belgium.
If you look at the key markets, key European economic gateways in Europe, sampling a long cycle from 2007 to 2018, comparing the average annual growth in the RevPAR, the evolution is between -3.3% for Rome and -1.1% for Madrid while it reaches +3.5% for Nice and Cannes. So, did Europe outperform inflation? Not really.
Looking at a short term period of analysis – 2012 to 2018 – the situation is much more interesting and stronger. There is a difference between the segments, but  very strong growth in the RevPAR is evident at all the key European destinations.

Project costs are increasing

Construction costs in 2018 in France, are higher than average cost observed since 1986. Real estate prices in urban areas and construction costs are inflating. For instance, for The Ritz, the cost per room is 1.6M€, for the Cheval Blanc project in the La Samaritaine building it is 1.8M€ per room.

In order to stand out in this very competitive environment, to create value, to guarantee the value creation of the asset you own in the next, 10, 15 or 20 years is strong, differentiation is very important, as is knowing how to achieve it and how to secure cash flow to drive yield. This is resulting in the birth of many “lifestyle” projects.

Return on investment

Investors are looking for EBITDA per square meter and Return On Equity because project costs are increasing. Should we have a unique destination in a building, or shall we create mixed use to generate more cash-flow and secure a higher return on...