As execs from Colliers noted at IHIF 2017 in Berlin last week, the City of Light is seeing performance stabilize after a series of terrorist attacks. The improvement is just in time for a number of luxury hotels to come onto a market that has become one of Airbnb’s global leaders.
But Colliers International took the long view in its assessment of the market, rather than focusing on the recent decline. “Paris scored highly in terms of valuation exit yields and hotel investment volume between 2007 and 2016,” Dirk Bakker, head of EMEA Hotels, Colliers International, said. “Paris also saw over 15 million international tourists visit the city in 2015 and witnessed average hotel occupancy levels of over 77 percent from 2012to 2016.”
The study came as STR reported a 13.7-percent decline in RevPAR for the city in 2016, as a result of a near double-digit drop in occupancy (-9.5 percent to 69.6 percent). Signs of a recovery came in December, with RevPAR growth after 16 consecutive months of declines—a positive performance that extended into January, when growth of 22.7 percent was reported.
“Paris should start to regain stability this year, provided there are no further security threats,” Robin Rossmann, STR’s managing director, said.
Looking forward, PwC has forecast RevPAR growth of 3.6 percent in Paris this year, with 5.8 percent in 2018. The city is expected to retain its strong rate this year, with €229 per night, behind Geneva and Zurich and RevPAR second only to Zurich, with €165.
Paris has been able to hold onto rate due to the limited supply coming in the market, with attention focused largely on the high end. The Palace segment—the official rating above five stars—is expected to become more competitive in the medium term with the opening and re-opening of three properties by 2018, including the Hôtel de Crillon, which is due to reopen in the first half of this year after a €100-million refurbishment, under the management of Rosewood Hotels & Resorts, bringing it into the same portfolio as The Carlyle in New York.
Marieke Dessauvagie, hotel consultant, Colliers International, said that growth at the top end would help, rather than hinder. “Adding to the luxury market will only add to the recovery. People who can afford to stay will keep coming and it will improve the market.”
“Luxury in Paris had a tough year last year,” Rossmann added. “Concerns in Paris are based around it being perceived as a safe destination, more than anything related to supply. Once it is seen as a safe destination, it won’t have any problems absorbing the supply. Given that one of the city’s main source markets is the U.S., the strong dollar will also be a factor in its recovery.”
The Airbnb Effect
Airbnb is making its presence felt in supply. According to JLL, despite a 2-percent growth of tourist arrivals in June, 2016 did not provide the expected upsurge due to increased competition from alternative accommodation such as Airbnb, as well as subdued visitations. Paris is one of the biggest markets for Airbnb, with 55,000 apartments to rent, according to database Inside Airbnb.
It is not just the budget sector that has suffered. The manager of the Four Seasons George V has commented in the press that Airbnb is taking business, with families in particular looking to apartments, a move which AccorHotels has sought to address with its purchase of OneFineStay. Airbnb has since responded with the acquisition of Montreal-based Luxury Retreats.
Dessauvagie pointed to the Luxury Retreats deal, but added that “Airbnb will compete with the budget end, but the other segments, not so much. They are targeting totally different groups.”
Anecdotal evidence has suggested that part of the movement to the sharing economy was motivated by security, with visitors feeling safer blending in with the local community. With anxieties in the French capital subsiding, visitors may trade anonymity for the brands.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.