A general shortage of available hotel stock in Paris is turning quality properties into trophy assets for international investment by private individuals and funds. This is likely to push the average value of guestrooms in the city’s hotels—already the most expensive in the world—to a record €650,000 by 2015.
The high price of hotels in Paris has not deterred investors, prompting hotel rooms to gain in value more quickly than those in other European cities, according to a new report from consultancy HVS London. France remains one of the most active hotel investment markets in the world, with a hotel sales volume in 2010 of around €772 million, ahead of Spain at €680 million and Germany at nearly €200 million. Only the United Kingdom (€1.9 billion) and Scandinavia (€1.2 billion) achieved a higher volume of sales transactions.
Key trophy acquisitions in Paris last year included the purchase from Starwood Capital of the 147-key Hôtel de Crillon by Saudi investors for €250 million (€1.7 million per key) and the purchase of Hotel Lutetia by Alrov Group for €145 million (€628,000 per key).
Hotel values in Paris have held up well despite the global economic downturn, with the French capital still ranked first in the latest HVS European Hotel Valuation Index, position it has held since 2008. Average value per guestroom currently stands at €568,800, a 4% increase on 2009.
“We expect further gain in values per room in Paris hotels over the next five years, pushing values to around €650,000 a room by 2015,” says Sophie Perret, an associate director for HVS London. “High barriers to entry, broad seasonality and a strategic location will continue to benefit the market.”
Performance for midscale, upscale and palace hotels in Paris experienced a strong recovery following the recession years of 2008-09. While RevPAR performance for midscale hotels increased by 20% in 2010 compared to 2009, RevPAR for upscale and palace hotels recovered by 10% and 11%, respectively, over the same period. Further improvements are forecast for 2011 and going forward, despite increases in supply mainly in the palace category.
In terms of hotel development, the number of 5-star hotel rooms has increased from 616 in 2002 to 2,395 in 2010 with two palaces opening: the 149-key Royal Monceau-Raffles Paris in October and the 81-key Shangri-La Hotel Paris in December. Two other hotels in this category are expected to open in the next couple of years: Mandarin Oriental Paris in mid-2011 and The Peninsula Paris in early 2013. The proposed 80-key Cheval Blanc Hotel, to be located in the former La Samaritaine department store, is also in the plans for a 2014 opening.
