Staggered Parisian hospitality industry finds its footing

Photo credit: encrier//Getty Images

The City of Light's hotel industry may have dimmed for a spell but now is back on track and pulling the rest of France up with it, according to analyst data. 

In February, STR pointed to the resurgence in Paris propping up the the rest of the country. Why February? STR analysts pointed out that that month was historically the lowest hotel demand month of the year in France. However, the country reported its highest absolute occupancy level for a February since 2008, and highest absolute revenue-per-available-room level for a February since 2014.

Paris reported a 12.7-percent increase in RevPAR to €135.18, with its highest February occupancy since 2014. AccorHotels reiterated the confidence, with its CFO, Jean-Jacques Morin, telling analysts at the group’s first-quarter results that the city was driven by “the recovery of leisure, which is increasing by 15 percent quarter-on-quarter and is now going back to a level which is above the pre-attack level of 2016."

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RevPAR in France grew 5.2 percent in the quarter, driven by an 8.1-percent jump in Paris, where rates were rising.

HVS reported that 2018 looked promising, with the return of average rate, according to hoteliers, and RevPAR growth seemingly trending upwards close to double figures. 

"2015, 2016 were difficult years, [but] 2017 saw a return of volume, with the return of U.S. and Chinese visitors and was more of a transitional year, but now there is growth on ADR and it looks great and promising," said Dayk Balyozyan, senior associate, HVS. "There have been strikes, on the trains and Air France, in the first half of the year, but the second half there are a lot of major events, including the Gay Games and the Ryder Cup, which will offset that."

HVS' latest study pointed to the healthy pipeline heading into the city, with 6,400 rooms due over the next four years. A third of the openings are due to be outside the city centre, plus 16 percent re-openings, including hotels at the top end of the market, such as the Hotel Du Louvre, with new luxury supply including the Bulgari Paris. 

With the city center very much the domain of the trophy assets, with more set to open this year, those who would develop in this ‘must-have’ location were advised to pick their arrondissements carefully.

"The market is dynamic and a lot of new supply is coming in and some re-openings," said Balyozyan. "The biggest luxury brands are looking for the prime locations, in the 1st or 8th arrondissements, or on the Champs-Élysées. In luxury, if you want the ADRs, you need the prime locations. If I were to develop a boutique luxury hotel, I would focus on areas such as Le Marais, which is local and becoming more high end."

Despite a decrease in 2016, Parisian hotels still had the highest values over the past 10 years compared to the European markets. "There was a moment after the terrorist attacks when the investors paused, but cap rates have remained very low and they are still interested in the market. Paris remains one of the priorities for investors," Balyozyan said.

And tourists, too. Just under 89 million tourists visited France in 2017, according to French government figures, a 5-percent to 6-percent year-on-year rise. As JLL points out, that puts the country back on track to reach its ambitious 100 million target by 2020. 

“There are signs that the world has learned to live with terrorist attacks. We’ve seen this in Barcelona, where only a couple of weeks after the August 2017 attack tourism returned to normal levels,” said Gwenola Donet, JLL’s Head of France for the Hotels & Hospitality Group, “What’s more, people are viewing France in a more positive light following Emmanuel Macron’s win in the presidential election, along with other positive news such as Paris being chosen to host the 2024 Olympics. This not only helps with tourism, but also creates hope that Macron’s reforms will make France easier to do business in from a tax and labour law perspective.”

The rise in tourist numbers is also helping push rates higher, welcomed news for hotel owners, who saw their ADRs drop precipitously with lower demand. 

For those brands which have to be in Paris, the advice is to pick the location to suit the brand. "The Hoxton is looking to the 10th which has a lot of start-ups and is more of an up-and-coming area," Balyozyan continued. "The area around Montmartre is also increasingly popular. The secondary opportunities are in the outskirts of Paris, where there are a lot of hotels being added and where the ADR is lower, but the business market is positive."

What also helps in France is hotel investors' willingness to not conform to one rigid form of asset structuring. “In Germany you will find lots of leased hotels, whereas in the UK hotels are mainly managed or franchised," said Donet. "In France, investors can find a range of models to suit their profile, whether it’s managed, franchised, non-branded or business-only.

"Hotel operators are very flexible and will adapt their model to suit investors’ requirements; we’ve especially seen this in Paris, where operators have designed very specific, bespoke hotel management agreements."

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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