Synonym of excellence, the “Palace” distinction is awarded to the most prestigious 5-star hotels in France. The number of Palace Hotels has doubled in the past 10 years, going from 16 in 2015 to 30 in 2025 according to Atout France, though this excludes Cheval Banc Paris and The Ritz.
This expansion reflects the global appeal of the French ultra-luxury hospitality and the sustained appetite of international investors for trophy assets.
With the increase in supply, now reaching over 3,000 keys, the occupancy levels were negatively impacted, moving from 80% to 60% in 10 years. Nonetheless, the market demonstrated a continuous increase in average prices. With average daily rates compensating occupancy decrease, today French Palace hotels generate the highest ADR across all other European gateway cities. As a result, RevPAR has increased, driven by strong ADR growth.
The demand for ultra-luxury French hospitality is correlated to the global rise of the upper class, and particularly in emerging countries (BRICS). Those guests often display low price sensitivity, thus enabling strong yet “harmless” rate increases. This price inelasticity is related to certain attributes. Indeed, Palace Hotels are characterised by an AAA location, a prestigious building, generous space, a perfect state of repair, an exceptional and innovative service and the existence of a unique house history.
This strong demand pattern led to the development of Palaces beyond the traditional hubs of Paris, Courchevelle and Saint-Tropez, resulting in their number to double. Supply progressively extended to new destinations and can now be found in Biarritz, Evian-Les-Bains, the surroundings of Aix-en-Provence, Bordeaux or even in Eugénie-Les-Bains. And more is better with those “modern-day castles.”
Having more Palaces spread around the French territory demonstrated three main benefits. The entry of new players on the ultra-luxury market forces the historical actors to renovate to get up to speed with the upcoming competitors. This is for example the case of the Ritz which underwent a massive renovation in 2016, for a total amount invested of €400 million ($464.3 million) or €2.8 million per key. Additionally, the multiplication of Palaces generated supply-led demand in Paris.
Also, the increase of the number of Palaces enabled the geographic diversification of the segment across France. This geographical spread reinforced the position of the French market as a top ultra-luxury destination.
Nonetheless, behind the unique label “Palace,” a very heterogeneous situation exists, translating into different realities. We can identify two different segments within the Palace category, affected by their respective owners’ motives: those that want return on investment, and those who privilege “return on ego”.
The owners driven by ego accept low capitalisation rates, as their interest is focused on detaining a trophy asset. The immediate return on investment behind Palace ownership become secondary, while prestige takes a more predominant position. It is the visible and indisputable proof of their success (return on ego assured).
The other category of owners kept in mind economic profitability. Those aim for higher capitalization rates. It is also a strategy for preserving their capital over a long period, often more than 20 years, the average holding period of historical assets.
Some investors have been able to combine the preservation of their heritage with value creation, such as the Prince Al Waleed Bin Talal, owner of the George V Four Seasons, while others have found that Palaces provide a complementary extension for their business in the luxury sector, like LVMH, owner of the Cheval Blanc.
Palaces are also experiencing certain real estate heterogeneity, particularly in terms of surface area per square meter. While some properties offer a total built up area per key above 200 sqm, others operate with less than 100 sqm per room. Those varying surface generosity reflect different levels of services, and thus directly affect the achievable average rates. This directly impacts the valuation of Palaces. All Palace hotels hence cannot be considered equal.
Today, new market entrants challenge historical players. It is the case of the mixed-use palace hotels, integrating branded residences. Those establishments combine ultra-luxury services and private residences by providing apartments’ owners full access to Palace-level services. This offering, new to the French hospitality market, capitalizes on the Palace proximity to achieve sales prices per square meter never observed before at residential properties. Today, most French Palaces benefit from a renewed offering, ensuring their ability to sustain high average rates.
Looking ahead, supply is expected to grow further, which will maintain persistent pressure on occupancy levels across French Palace hotels. As new properties enter the ultra-luxury market, average room rate is likely to remain the only RevPAR lever in the coming years. In this context, unique and memorable guest experiences will be the distinctive success factor, differentiating leading performers from the rest of the market. The ability to provide rate segmentation within the Palace market is the next market trend.
Gabriel Matar is a Paris-based asset manager, hotel advisor and managing partner at Sentinel Hospitality.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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