With increasing uncertainty and new cases of the Omicron variant worldwide, some countries have reintroduced restrictions around travel.
In 2020, luxury hotels experienced lower global occupancy rates than all other categories combined. For example, luxury hotels in China recovered 66.9% of their 2019 levels, which was 4.9% lower than the combined recovery of all other categories (71.8%). Luxury hotels in the Middle East regained more than 50% of the market for 2019 compared to the market, while the recovery for all other categories was 7.3% higher. However, luxury hotels showed greater resilience in recovering the average daily rate (ADR). Although down slightly from 2019 levels, luxury hotels in all regions have recovered between 93.0% – 96.6% of their pre-pandemic ADR levels. A good example of this is in Europe, where luxury hotels reclaimed 96.6% of their 2019 levels. For comparison, the rest of Europe’s hotel categories reclaimed 82.5% of the 2019 index.
Fast forward to 2021, luxury hotels in all regions approached or exceeded their 2019 levels in ADR. And unlike in 2020, the ADR Deluxe Recovery came in at higher levels than all the other categories. In Europe and the Middle East, specifically, the exchange rate averaged 119.7% and 106.1% compared to 2019, respectively.
Presentation: Back to…normal?
Although the uncertainty about the pandemic has affected a large number of pipeline projects around the world, new luxury hotels are still attractive among investors.
With 200,000 luxury hotel rooms in the pipeline across the planning, final planning and construction phases, the global luxury sector is expected to see a 17% increase in room supply if all projects are completed within the next two to three years. This growth is a testament to the industry’s resilience.
Although China and the United States offer the largest number of luxury chain rooms in the pipeline, the Middle East and Asia Pacific region (excluding China) is experiencing higher supply growth than the global average. China offers 42,055 luxury series rooms under development, a figure that would produce a 35% increase in supply in the market if all of these rooms were completed. The US offers 17,199 luxury chain rooms – a 13% growth if all projects under development were completed.
Saudi Arabia and Qatar are expected to increase the supply of luxury hotels by 112% upon completion of all projects. This is not surprising news, as we noted in a previous analysis that the growth of the leading hotel supply in Saudi Arabia, combined with the strength of other hospitality markets in the Middle East, is further confirmation that the region is rapidly growing as a global tourist destination.
winter is coming
Winter is approaching in many parts of the world, which benefits popular “winter sun” destinations such as Dubai, the Maldives and Miami.
Since the pandemic has declined, luxury hotels in Dubai and the Maldives have slowly but surely restored their 2019 occupancy levels. For the week ending October 31, for example, luxury Maldives hotels recorded an occupancy rate of 106.1% from 2019. In the same week, Dubai luxury hotels saw 96.7% of the market occupancy for 2019, while the luxury hotel sector in Miami showed 82.8% of its level in 2019.
Then there are the prices, with luxury hotels already posting ADR levels of 20-40% prior to the 2019 comparison. Dubai luxury hotels are leading the ADR recovery at 140.8% from 2019 levels during the week ending October 31.
Undoubtedly, leisure travel is the main reason for celebration since the start of the recovery from the global pandemic. However, to get to the next stage of performance recovery, the hotel industry needs business and group trips to come back in a big way.
While analyzing group demand, we have seen how groups are slowly starting to return to major cities. In Europe, however, collective demand is still emerging at a slower pace.
While looking at the luxury and luxury hotel occupancy for the week ending October 17, Amsterdam regained 30% of its 2019 levels. Although these levels were low when compared to the 2019 benchmark, it can be considered a moderate success given the group’s demand challenges in the year the past.
For comparison, despite the UK removing international travel restrictions on October 4, luxury and luxury hotels in London only regained 21% of 2019 compared to the week ending October 17.
There is no doubt that the hotel industry has proven resilient and will continue to attract guests and investment. However, success is not guaranteed in every market or every hotel type. The future is still uncertain with new variants like Omicron spreading across the globe, but luxury hotels have shown their ability to navigate through time.
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STR provides benchmark data, analytics, and market insights for the global hospitality industry. Founded in 1985, STR maintains a presence in 15 countries with the company’s North American headquarters in Hendersonville, Tennessee, international headquarters in London, and Asia Pacific headquarters in Singapore. STR was acquired in October 2019 by CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics, and online markets. For more information, visit str.com and costargroup.com.