A growth in worldwide wealth is boosting the fundamentals of the luxury hotel industry, expanding further investor interest in the segment, according to new research from JLL.
‘The growth of the high net worth (HNW) population has been very consistent in recent years, reaching a figure of 22.5 million individuals worldwide by the end of 2021,’ said the report’s co-author, Zachariah Demuth, global head of hotels research at JLL. ‘These individuals cite travel as one of their biggest passions, so we are seeing this trend combined with a growth in the use of yachts, private jets and membership clubs like Soho House.’
The Evolution of Global Luxury Hospitality report, from JLL Hotels & Hospitality Group, spotlights how the rising popularity of luxury hotels, alongside consumers’ increased prioritisation of immersive experiences, is impacting real estate supply and investor allocations.
The number of luxury hotel keys has increased by more than one million over the past 40 years, the report reveals. Unsurprisingly, luxury hotels have become an increasingly institutional investment choice, as changing consumer preferences create new investment opportunities.
Investor dynamics
‘Institutional investors have been gravitating towards luxury hotels, thanks to rising yields,’ Demuth said. ‘Luxury single-asset hotel liquidity exceeded $10 bln (€9.2 bln) in both 2021 & 2022 for the first time since 2015, driven by strong performance in the Americas.’
In Europe, Demuth suggested that cross-border flows are likely to create this year’s big investment story. ‘Despite the fact that liquidity reached an all-time high in the last two years, that was without significant cross-border volumes, due to border closures and geopolitical instability.
'We expect to see a major return of foreign capital into Europe this year, from family offices in Singapore and Hong Kong, to investment funds, Middle Eastern sovereign wealth funds and UHNW individuals. We also continue to see record numbers of private equity funds being raised, and despite that capital often seeking leverage in a tougher debt environment, financiers do have an appetite for the luxury hotel market.’
In the light of this, there is also plenty of development appetite in the most compelling markets.
‘Luxury hotels comprise an increasingly large share of global hotel supply,’ Demuth confirmed. By 2033, the report notes there will be 1.7 million luxury hotel rooms in the world, equating to 7.6% of total hotel supply. Supply and demand for luxury hotels is expected to continue to grow over the next decade.
In Europe, key development hotspots include Rome and Madrid, which are finally seeing the arrival of global luxury hotel brands after surviving for years with family-owned boutiques, said Demuth. ‘Rome is becoming such an exciting city for luxury hotels, with the recent arrival of Six Senses and the imminent opening of the Rome Edition and Bulgari hotels. None of these is cookie-cutter luxury – they represent the best of the best.’
Meanwhile, Madrid is another ‘long overdue’ recipient of luxury lodgings. ‘Local government efforts to launch a luxury hotel district have helped, with supply growing exponentially in the last three to four years. JW Marriott chose Madrid and not Barcelona for its Spanish launch, and the Madrid Edition recently opened. By the end of the year, the Spanish capital will have almost 2,700 luxury hotel rooms.’
Wealthy customer base
High net-worth individuals (HNWIs) contribute approximately 36% of the world’s spend on travel and nearly 70% of the spend on luxury travel, and their numbers are still growing. ‘As the HNW population grows worldwide, expect luxury travel to accelerate,’ Demuth added.
The report suggested that the expansion of stealth wealth has given rise to ultra-luxury hotels. Over the next ten years, 46,000 additional ultra-luxury hotel rooms will open around the world. As the ultra-high net-worth (UHNW) population continues to grow, hotels will increasingly attempt to cater to them.
‘More than ever before, luxury hotels can be transformative for cities and resorts and despite staffing challenges, the prospects are promising,’ Demuth concluded. ‘Luxury hotels know more about their guests than any other hotel type and that means that they can be strategic about shifts in the battle to manage personnel.’
