Luxury hotels hold their appeal for real estate investors

Investors are homing in on luxury hotels as resurgent international travel boosts the hospitality sector

September 29, 2021

Luxury hotels have been hit by stringent global travel restrictions, but as wealthy guests return in ever greater numbers, so too are investors.

Ivestment in European luxury hotels, which accounts for 13 percent of the wider hotel investment market, is now close to pre-pandemic levels, according to JLL data.

Even during the pandemic, interest in luxury hotels was resilient – even if many investors remained cautious during the first wave. Since March 2020, 26 luxury hotel deals have been signed in Europe, worth a total of €2 billion (US$2.36 billion).

These include Austrian group SIGNA’s purchase of the Hotel Bauer Palazzo Venice and Spanish family Casacuberta’s acquisition of the Hôtel Beau-Rivage in Geneva. In Madrid, the Archer Hotel Capital investment vehicle, co-owned by Singapore’s GIC and Dutch pension fund APG, paid €205 million for The Madrid Edition last year.

“Investment in luxury hotels never completely went away,” says Gwenola Donet, head of EMEA Hotels & Hospitality Strategic Advisory at JLL. “Like all areas of the hospitality industry, the pandemic disrupted normal activity but an historic scarcity of opportunities to acquire luxury hotels - assets only trade perhaps once in a generation – has meant no shortage of bidders are at the ready when opportunities arise.”


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High-end hotels lead the pack

Luxury travel contributed 21 percent of Europe’s total 2019 tourism revenues, according to consumer data company Statista, and is now set to bounce back stronger than before as guests prioritise privacy and security.

Luxury hotels are now on a faster road to recovery than the wider hotel market, says Donet, largely down to rising revenue per available room (RevPAR).

In the luxury hotels of London, Milan, Paris and Rome, RevPAR is improving at a faster rate than in lower-rated hotels, according to data from STR Global. More broadly, hotel investors anticipate that their RevPAR will return to 2019 levels in three to four years, according to JLL’s Global Hotels Investment Sentiment Survey.

Another reason for luxury hotels’ sustained appeal is the higher mobility of their guests, says 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,” says Jahns, pointing to research by Virtuoso, which highlights the trend. “Ultra-wealthy tourists have also been able to get around travel restrictions and social distancing measures by chartering private jets.”

Wealth preservation

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, remains a factor for investors seeking safe options for wealth preservation – and luxury hotels offer that,” Donet says.

She expects the type of luxury hotel investor to change in the coming years as a new generation of high-net worth individuals takes the helm.

“We’ve been used to a certain type of investor so far, often traditional family wealth or capital from oil-rich regions such as the Middle East,” Donet explains. “But that could change as individuals 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”, Jahns concludes.

“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.”

Contact Gwenola Donet

Head of EMEA Hotels & Hospitality Strategic Advisory

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