PARIS—At the beginning of 2012, the overall French hotel supply accounted for 17,000 star-rated hotels or a total of 617,000 rooms, according to the French Ministry of Tourism. For 2013, based on our estimates at Horwath HTL, the French market should have a slight increase in room supply, showing a positive dynamic. This trend is supported by the on-going development of hotel chains, which are still expanding their network mainly on a franchise basis.
Overall, the average hotel chain penetration rate in France, the highest in Europe, reaches 41% of the room counts, according to the French Ministry of Tourism. Two leading groups, Accor and Louvre Hotels, are estimated to represent two-thirds of total branded rooms.
Still in 2012, the French hotel industry experienced a slight decline in occupancy in 2012, decreasing 1% to 66.7%, according to year-end 2012 data from STR Global, sister company of HotelNewsNow.com
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Philippe Doizelet |
However, market performances registered by the French hotel industry were resilient during the unfavorable economic context of 2012, according to STR Global. Growth in revenue per available room for that same year remained positive albeit moderate at 2.9% to €109.79 ($144.83) compared with the previous year. This performance in RevPAR is driven by a 3.9% growth in average daily rate to €162.06 ($213.79). It is fair to say that ADR was pulled up by the upscale and luxury segments.
An industry driven by Paris
The French hotel industry remains driven by Paris, which benefits from a favorable combination of high occupancy and continuing increases in ADR, according to Horwath HTL. In this favorable context, Paris achieved or planned upgrades of many hotel facilities in the 4- and 5-star segments. Following this trend, the number of rooms in Parisian Palaces, Paris’ top luxury hotels, has increased by 50% since 2010. There had been four significant openings in the Palace segment over the last two years, including a Shangri-La Hotel Paris, Mandarin Oriental, Le Royal Monceau Raffles and W Paris. Major upscale projects are planned over the next five years, including major developments in the inner suburbs, as well.
Despite the depressed economic context in Europe, Paris-Ile de France, or the greater Paris Region recorded 68.3 million guest nights in 2012 and a 0.3% increase versus previous year. This was made possible through a growth in foreign visitors (+1.5 points), according to Ile de France Regional Committee of Tourism.
Paris, which reached 78.8% occupancy in 2012 (0.2% decrease versus 2011), performed especially well and managed to remain quite stable. RevPAR for full-year 2012 reached €202.07 ($263.24), an increase of 8.5 % compared with 2011, due to an 8.7% increase in ADR to €256.29 ($333.87), according to STR Global.
In first quarter 2013, Paris saw occupancy grow slightly at 0.6% to 70.3%, ADR rose 3.7% to €234.62 ($305.64) and RevPAR increased 4.3% to €164.87 ($214.78), according to STR Global.
Hotels in other French regions registered a minor decrease in occupancy that was not compensated by a proportional increase in ADR, according to Horwath HTL. As a result, RevPAR dropped marginally.
It is our opinion that the French hotel market is facing an interesting dichotomy: On one hand, Paris and the top 10 metros is seeing demand remains steady and on the other secondary markets have been strongly affected by the economic crisis.
Current and future trends in development
The new star rating system, implemented gradually since 2009, has improved the overall quality of supply. On 1 January 2012, the 3-, 4- and 5-star hotel supply represented some 45.5% of the overall room capacity—5.4% more than 2011, with a 4- to 5-star segment totaling 15.2% of the global room stock, according to the French Ministry of Tourism. This trend is anticipated to last, given recent openings and projects planned for the next years.
The weakest properties are rapidly exiting the market. A significant share of these properties is made of small-sized, dated independent hotels, located in unattractive locations and most often positioned in the economy segments. These terminations are due to the inability to meet the requirements of the new star rating system and an economic model unable to create value, thus preventing any transmission of assets.
Like other segments of real estate, hotel investment is a two-sided market. While activity remains buoyant for hotel assets benefiting from prime locations, hotels displaying lower performance have become less and less attractive. Hence, Paris and Ile de France region concentrate more than half of these investments, remaining the most attractive markets for foreign investors, thanks to transactions of trophy assets in Paris.
A dynamic market for hotel investment
While most of the country’s industries were severely hit by the crisis, France remains one of the most dynamic markets for hotel transactions in Europe. With €1.8 billion ($2.3 billion) invested in 2012, the market has increased by 59% versus the previous year, according to the BNP Paribas Real Estate.
The most significant sales agreements sealed in 2012 include major assets from the Groupe du Louvre portfolio, a subsidiary of Starwood Capital Group to a Qatari investor; 165 hotels under B&B brand to a consortium led by Land Walls; the sale of five Marriott-operated properties belonging to Whitehall Fund to Host Hotels & Resorts.
2012 saw a rise of foreign investors’ activity. As a result, the BNP Paribas Real Estate said the volume of domestic investment represented only 53% of the total compared with 68% in 2011 and 94% in 2009.
However, the increased uncertainty in financial markets has laid banks to be more selective and debt has become more difficult to source for new-build projects.
As a result, developers focus on existing assets and selected opportunities in Paris and city centers of the top 10 metros. In 2012, cities of more than 100 000 inhabitants have concentrated almost half of the new created room capacities. We anticipate that this trend should remain in 2013.
Outlook for 2013
After the strong recovery in 2011, the slowdown of the French economy over the past months combined with the uncertain outcomes of budgetary pressure has called for cautious forecasts. Indeed, the French economy remained at a standstill in 2012 as gross- domestic-product growth was estimated at 0% for the whole year. The hospitality industry’s performance has proven to be directly linked to the changes in current GDP.
The perspective for 2013 is rather worse than in 2012. However, we anticipate a slower growth in RevPAR around 2% in relation to the poor performance in GDP, as we anticipate that the context will be less favorable to increase ADR.
In 2013, the French market should remain attractive for hotel investment. As investors are now looking for secured property, Paris, the top 10 metros, the French Riviera and selected Alpine resorts should be seen as most attractive destinations for real estate driven properties.
In total, France will remain characterized by a two-gear hotel market:
- On one hand, the Paris region and to a lesser extent the French Riviera, driven by global business and leisure dynamics, are solid markets. Interest from investors remains strong and demand is expected to remain solid, supported by sustained rates and resisting the market downturn.
- On the other hand, regional markets are more volatile. They perform at a lower level as they are often impacted by seasonality and rely more on the domestic market. However, regional markets could be looked at opportunistically if well located in a city center and/or in a perspective of market renewal.
Philippe currently serves as Managing Partner of Horwath HTL based in Paris. Before joining Horwath HTL, he was Corporate Head of Research at Accor. Philippe’s business skills include Market and feasibility Studies, Due Diligence services, Appraisals and Hospitality Strategy. He has over 20 years of International experience in the hospitality, tourism & leisure sector. Graduated in Hotel and Tourism Management, his business skills are reinforced by a strong hotel and tourism background. He is a fellow member of the International Society of Hospitality Consultants.
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