Europe’s beachfront hotels are increasingly likely to be redeveloped as luxury, all-inclusive resorts as investors seek ways to achieve a return on capex costs amid limited supply in prime holiday locations.
With leisure driving growth in the hotel sector across the continent, and globally, investors are increasingly looking to urban leisure destinations and to coastal sites. However, there is limited supply of the latter.
“There is limited product in Europe. For France for example, there are no new greenfield sites being allowed for development by the beachfront, so the options are campsites or transforming existing assets. The way to achieve return on investment is to go upscale, which is probably the way it will go,” says Club Med Chief Development, Construction and Property Officer & CEO Mountain Strategy, Gregory Lanter.
“Currently there is a first generation of hotels from the 1950-70s which are at a turning point, because on energy they are nowhere and in terms of the [contemporary] standard they are nowhere. But what they have is unique because they have space in the best sites. The option is, shall we destroy and rebuild, or try and renovate? Each option comes with its own challenges,” he says.
Lanter believes that the twin imperatives post-pandemic of the desire among travellers for reconnecting with friends and family and other human beings aligns well with the resort industry and what it has to offer, especially its “hassle free” nature.
“All–inclusive has traditionally been considered as cheap or at least value for money. But what we are seeing now not a value emphasis but a state of mind. All-inclusive is something you are looking for because there is nothing better than going around [a resort or destination] without paying for anything,” he explains.
Rather, Lanter believes that it is part of an “elevated experience”, which might include a package of food, drinks, shows, ambience, kids facilities and sports.
Resort model requires operational rethink
However, he warns that such an approach requires careful management from investors and operators because it is a fixed cost model, “because you have to provide the offer”.
This is less of an issue if the location is somewhere that is effectively non-seasonal, such as the Caribbean, the Middle East and parts of Africa. By contrast, Europe is more challenging and one solution is to take more direct control and target different markets, for example the French in August, Indian travellers in June, when both countries typically focus their vacations.For the shoulder season, destinations can also look to the MICE market, and attract these gatherings away from cities during the shoulder season to help maintain occupancy and profitability.
“Beyond this, the answer is accepting that you will need to shut during the close season. But what do you do with your staff, do people want to work for six months? So we need to find a place for them to work during the winter,” he says.
Branding to become revenue driver
Hotel Investment Partners co-founder and managing director asset management Sergio Carrascosa says that such trends have encouraged investors to look at branding, moving beyond the major travel operators and family ownership to leverage top brand names such as Marriot, Hilton, Hyatt and Intercontinental, which from an investor point of view, provides much more control of distribution and commercialisation,” he argues.
“We have been in a very sweet moment over the last 15 months. Last year, there was a huge increase in room rate pricing, although occupancy levels did not return to 2019 levels. This year is a little different, rates are up but not that much, but occupancy is recovering to 2019 levels. This year could be one of the best in the hotel industry and last minute demand has increased a lot,” he says.
Although there will be opportunities to increase prices again in 2024, he believes these are stabilising and that it will become increasingly difficult to raise prices.
“There are still opportunities at the beachfront where the destinations have room to grow, often currently operating at mid-scale and so with the opportunity to upscale. We need to change not just the asset part the operations and F&B,” he says, echoing Lanter’s view.
IHG Hotels & Resorts VP development Europe Willemijn Geels also believes that the strong leisure trend will continue to drive growth but adds that hotel groups should not ignore corporate and business travel and especially the increase in so-called bleisure [where people extend a business stay for vacation].
Blending purposes and urban focus
“Strong leisure demand was already there pre-pandemic and this was the first sector to pick up, and has been a pretty resilient segment compared with corporate,” she says. “We always look for a mix of business and leisure for hotel acquisitions. People are undoubtedly extending their stays after a business trip and these are blurring more, which has given rise to bleisure.”
As a result, IHG has focused especially on new signings in cities, with hotels that have a heavy leisure component.“We want people to experience the local communities while they are staying, and we look to bring that into the hotel whether it be through a local chef or other initiatives,” she says.
Geels also feels that although upscale and upper luxury have continued to grow, resorts can diversify their accommodation offer in order to attract different customers.“While a resort can be a standalone hotel, we tend to think in terms of an integrated resort, and I think the opportunity is much wider as full leisure destinations that go right across the spectrum of hotel types, so brands such as Holiday Express and Holiday Inn work very well as parts of resorts, where they attract a more conscious family audience,” she says.
The reframing of all-inclusive as a more experiential offer that appeals to travellers seeking peace of mind rather than costs savings could certainly open the door for investment opportunities. Southern Europe’s older resorts look primed for redevelopment as one old maxim looks ready for adaptation – location, location, luxury vacation.
All those quoted in the article appeared on stage at the International Hospitality Investment Forum held in Berlin between May 15 and 17, in a session called - Capitalising on the Dominance of Leisure