What Credit Crunch? More Luxury for New Money

The just released (October 17) Global Hospitality Report from HVS begins gently enough with the query:

• What is Luxury?
• How the luxury hotel product has changed over the years, 
• Demand Drivers in Luxury Hotels 
• Role of High Net Worth Crowd as Luxury Consumers 
• Emerging Economies in Luxury

Not until the last four pages do we come to What Credit Crunch? More Luxury for New Money. Following are highlights from those pages, followed by excerpts from an interview a few days ago by Harvey Chipkin with one of the authors, Arlett Oehmichen, associate director of HVS in London. – who updated the outlook because of the tumultuous changes in the few weeks since the Report was issued.

• While many projects are facing more difficulties in obtaining financing, "it must be noted that interest in the luxury segment is still very much alive, and that financing for trophy assets in prime locations may have an advantage.

• The luxury hotel sector has shown itself to be more resilient to the economic downturn up until now. However, in the face of increased competition amongst operators and the variety in brands in the segment, hotel chains will have to differentiate their services and products in order to stand out in the market and attract their client base.

• Guest satisfaction in the luxury segment is extremely important and, at times when operating costs are rising, such properties still need to offer their guests an experience that is remarkable and outstanding.

Global Growth of High Net Worth Individuals:  1996-2007

  

• The luxury segment is expected to feel less of an impact from the current situations, as cash-rich, high net worth individuals, with increasingly liquid prosperity continue to give preference to trophy assets and are ready to spend their money on such products and investments. These may well be from the new-found billionaires in the merging BRIC countries who are keen on European travel and investment opportunities.

• Certain factors, such as climate change, which may possibly result in higher taxes for businesses and individual travelers and the appreciation of the euro against the U.S. dollar also deserve attention. Conversely, the affluence of and increase in travel demand from the “BRIC” countries (Brazil,  Russia, India and China) are expected to contribute positively to European tourism and to the luxury hotel segment.

• Estimate by industry observers of a recovery for European luxury hotels is, at the earliest,  in 2010. Average rates will remain competitive across the sector as the main players aim to retain their customers and attract new wealthy individuals to the higher end of the accommodation sector.

• Despite tougher market conditions, hotels continue to attract developers’ and investors’ interest. Although it is undeniable that as a result of the subprime crisis there is less debt available for investors, it should be noted that opportunities in the market remain, and demand for luxury is still high – especially in gateway cities and for internationally branded luxury hotels.

The Pie Chart:  High Net Worth Individual Population Growth by Market --2007

 

 

 

 

 

 

 

 

 

 

• The report’s authors expect to see further opportunities in Central and Eastern European markets as these countries still show considerable potential.  The credit crunch will also reveal the market presence of brands not only in the luxury sector but across the entire hotel industry, which as a result will clearly indicate where each brand stands and the opportunities available for success.

• The luxury hotel market along with the travel industry will continue to grow and draw interest from different parties that regard it as a sound investment opportunity as well as an attractive consumer product. To guarantee sustainability in the future it is necessary that the luxury hotel sector adapts to global changes concerning environmental issues as well as trends in consumer demand.

Harvey Chipkin, Senior Editor

To read the entire article go to: http://www.hvs.com/Library/Articles/ and look for headline: “What Credit Crunch? More Luxury For New Money”