Real estate investors still seeing the appeal of luxury hotels

Insight Comment On an instinctive level this makes sense. After being cooped up for 18 months wealthy tourists will be willing to spend money at more luxurious properties, especially if they’ve been able to save during the pandemic. This gives investors greater confidence to sink their money into hotels catering to that market.

Investors are returning to luxury hotels, according to new data from JLL with figures now on par with the ten-year average.

Since March 2020, 14 luxury hotel deals have been signed in Europe, worth a total of €3 billion (US$3.48 billion). These include the Ritz London, Hotel Bauer Palazzo Venice and Hôtel Beau-Rivage in Geneva.

The continued interest in high-end properties comes as the wider market is down 40 percent.

“Investment in luxury hotels never completely went away,” said Gwenola Donet, head of EMEA Hotels & Hospitality Strategic Advisory at JLL. “Like all areas of the hospitality industry, the pandemic disrupted normal activity but scarcity of opportunities to acquire luxury hotels and confidence in long-term demand means no shortage of bidders are at the ready when opportunities arise.”

Luxury hotels are now on a faster road to recovery than the wider hotel market, said Donet. Gross profit per available room is rising faster for luxury than for any other sub-sector, according to hotel analytics firm HotStats.

Meanwhile data from STR shows that in the luxury hotels of London, Milan, Paris and Rome, revenue per available room (RevPAR) is improving at a faster rate than in lower-rated hotels.

Another reason for luxury hotels’ sustained appeal is the higher mobility of their guests, said Jessica Jahns, head of EMEA Hotels & Hospitality Research at JLL.

“Wealthy households feel more at ease booking holidays on the off-chance or last minute – and even during the pandemic,” said Jahns. “Ultra-wealthy tourists have also been able to get around travel restrictions and social distancing measures by chartering private jets.”

In the coming months, luxury hotels could benefit as investors look for ways to hedge against rising inflation, JLL predicts.

Middle Eastern investment and hospitality firm Range Developments is offering investors the opportunity to put capital into its five-star luxury resorts in the Caribbean as an inflation hedge.

“Inflation, alongside geopolitics, is another factor for investors seeking safe options for wealth preservation – and luxury hotels offer that,” Donet said.

She expects the type of luxury hotel investor to remain focused on the historically strong core market and possibly diversify in the coming years as a new generation of high-net worth individuals ups its game; Microsoft founder Bill Gates this year took control of the Four Seasons management company.

“We’ve been used to a certain type of investor so far, often traditional family wealth or capital from the Middle East,” Donet said. “In addition to them, we could see new investors who have made significant wealth from the world of tech emerge.”

Regardless of wealth base, investors are more convinced than ever that “the higher the hotel star, the safer the asset from an investment perspective,” Jahns said.
“The future of travel is all about providing guests with high-quality experiences and with more travellers willing to pay for premium for that, Europe’s historic luxury hotels will benefit.”