GHN Market Report: Paris Paris: A Global City and a Major Hub Paris together with surrounding areas form one of the major economic regions in Europe and second to London as a financial center. With more than 2.2 million people in 2013, the inner city alone forms the heart of a region totaling about 12 million inhabitants. Philippe Doizelet Managing Partner, France Horwath HTL As a region, Ile-de-France ranks as one of the first office property market in volume in Europe totaling 50 million sqm office spaces. The French Capital ranks second largest European commercial real estate investment destination after London (CBRE ranking 2013). The French capital has two main business districts: The Central Business District (CBD) located in the 1 st and 8 th districts concentrates the most prestigious business areas and represents alone 45% of office space in central Paris in 2013. La Defense has more than 3 million sqm of office space, concentrates 2,500 companies and 1,500 headquarters of which 15 of the top 50 global companies. More than 400,000 sqm are immediately available for location. 180,000 people work there of which 57% are executives. The recent slowdown of French economy combined to the scarcity of available land plots in central Paris limit the development of new constructions in the city. Yet, this shortage generates an oil spot effect to the benefit of the suburbs. For instance, Marne-la-Vallee nearby Disneyland Paris is very dynamic together with the Plaine de France axis stretching from the Stade de France to Charles de Gaulle airport. In these areas, land prices remain affordable and plots available for construction. It is fair to say that the city tends to metropolize at the image of New York or Hong Kong. Over past years, Paris has become a major transportation hub in Europe, being efficiently linked to most of the demand generating markets from France, Europe and the rest of the world. Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 1
The air traffic has been increasing over the past years. After a drop in 2009, Paris airports have recovered to reach 90.3 million passengers in 2013, a 1.8% growth compared to 2012 and a new record for the company, mainly thanks to the growth of low cost traffic, totaling 13.5% of the number of passengers in Orly and Roissy airports. In addition, located 7 km north of Paris-Le Bourget is the leading business airport in Europe and an important center for private aviation industry. The train system continues to attract more and more travelers with 127.5 million passengers transported in 2012 (+4.1% compared to 2011) on long distance lines of SNCF. Eurostar from/to the UK and Thalys from/to Benelux maintained their dynamism generating an overall traffic of 16.6 million passengers in 2013 witnessing the success of the European high speed rail system. In 2013, a new service has been launched with Barcelona, Spain. Beyond the strong reputation of the public transportation system, which was used by 1.6 billion passengers in 2013, challenges remain to expand lines beyond the inner city. The RER suburban train system is heavily congested and the project of automated express metro aimed at providing a rail circle line of 200 km around Paris has been postponed as a result of cuts in public spending. 2013: Another Good Year for Paris Tourism With 83 million tourists in 2012, and a predicted growth to 89 million for 2013, France remains the leading international tourist destination in the world. Paris region is the most visited region in France, combined with Disneyland Paris, the first leisure park in Europe (14.9 million visitors in 2013). The city offers world acclaimed attractions and several shopping fashion districts (Champs-Elysées, Faubourg-Saint-Honoré, Haussmann, Opera) in its center, as well as major cultural spots, especially Notre Dame Cathedral (13.7 million visitors), Montmartre (10.5 million visitors), Louvre museum (10 million visitors), Eiffel Tower (6.3 million visitors) and Pompidou Centre for Modern Arts-Beaubourg (3.8 million visitors). In Paris, 2013 was marked by the return of the traditional inbound markets. From January to October 2013, the United States consolidated as the leading foreign clientele in Paris (+16.5% compared to Year to October 2012), followed by the UK (+2.6%). Some of European markets as well as Japan, affected by the impact of the financial and economic crisis, register negative Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 2
growth such as Spain recording the highest decrease (-47% in 5 years), or Italy (-20% for the same period). 2013 confirmed the steady increase registered by Asian and Middle East markets over the past year. In total, 2013 could be considered as a year of consolidation following the record year of 2012. A Challenged Leader on the MICE Market With 181 international meetings, Paris ranks fourth after Singapore, Brussels and Vienna by UIA in terms of congresses of international associations and moved up to the second place following Vienna, regarding the number of meetings per city (ICCA ranking 2012). The capital has some 680,000 sqm of exhibition spaces in 18 sites. Among the leading centers, Paris-Nord Villepinte should be extended by 2021 and ultimately offer 350 000 sqm of covered exhibitions space, confirming its dominant position. Together with 9 other major exhibition and congress centers, Villepinte has joined the Viparis brand, which offers a common management and represents 500 000 sqm and more than 330 fair trades and 150 congresses per year. Business events (congress, fair trades and exhibitions) mainly concentrate on the facilities located in inner Paris, closest inner suburbs, and along the north axis (from Paris-Charles de Gaulle to La Defense via le Bourget and Villepinte ). Trade fairs and exhibition peak periods (spring and fall) induce traditionally unmet demand. The lack of suitably located hotel supply to accommodate delegates generates an important demand boost for suburban hotels. The shortage in supply combined to yield management techniques results in a global increase of the hotel average rate. Trends in Hotel Supply In 2012, the overall inner Paris hotel supply accounted for 1,564 hotels with a total of 81,431 rooms detailed as follows: Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 3
*Others: Hotels under rating Source: Paris Tourism & Convention Bureau Together with the suburbs, the inventory reached 151,000 hotel rooms in 2013 (Tourism Regional Committee). The Paris market experiences a continued upgrade of hotel facilities. In 2012, the 3-4-5-star hotel supply represented 68.1% of the total capacity, i.e. 3.9 % more than 2010, with a 4-5-star segment totaling one-third of the global room stock. This trend is anticipated to last, at the light of the limited projects planned for the next years. In addition to the 7 historical Parisian palace hotels (Meurice, Crillon, Plaza Athenee, Bristol, George V and Fouquet s Barriere), four recently opened units have increased the supply in the high-end segment since 2010 (Royal Monceau, Shangri-La, Mandarin Oriental, Prince de Galles). The Plaza Athenee hotel has started its renovation work by the end of the 2012 and will reopen in June 2014. The Ritz and the Crillon hotels have been closed for 2 years for a massive renovation project and should reopen respectively by the end of the year and in the beginning of 2015. Finally, the Lutetia hotel, recently acquired by the Israeli Alrov group, is going to start a 3-year complete renovation program next April 2014. The closing of these 3 major leading hotels benefit to the other properties operating on the Parisian luxury market and is translating into significant growth in occupancy. Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 4
High-End Hotel Projects in Paris: Source: Horwath HTL Other hotel projects in Paris and close suburbs total another 4,000 rooms. This additional supply of 5,000 is far below the expected hotel needs which are estimated to 12-18,000 additional rooms by 2020 and 25-30,000 by 2030. As a consequence, additional supply is anticipated to develop outside the inner city and especially in the immediate outskirts of Paris and around business districts such as la Defense, Saint Denis Pleyel (in the north of Paris) and in the vicinity of Orly and Roissy airports. As of today, the suburban hotel supply is dominated by the economy and budget sectors and primarily consists in branded units, of medium capacity (<150 rooms) on the budget and economic segment, and large capacity (<300 rooms) on the 3- and 4-star segment. Over the next years, hotel projects of larger size (between 300 and 400 rooms) and higher categories, are likely to emerge in Paris suburbs to match demand at the image of suburban hotel clusters like Dumbo (New York City) or Sha Tin (Hong Kong). A Sustained Hotel Demand In 2012, Paris hotels over performed their previous record set in 2007 with 36.9 million bed nights and a steady average stay of 2.3 days. In 2013, the demand for hotels is globally stable compared to the last two years, with a slight bed nights decrease of 0.7% (31 million in Year-to- October 2013). Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 5
Paris Tourism Trends (in 000s): Source: Paris Tourism & Convention Bureau 2013 Hotel demand has been boosted by the strong growth in international visitors, representing almost 70% share of Paris bed nights (+10% bed nights and +12% arrivals since 2010). Visitors seem not to be affected by the high parity of the Euro versus the US Dollar (1US$ averaged 0.75 in 2013). The rise in tourism demand offsets a slight drop in business demand since 2010 (-2% in bed nights). Still, the Parisian market shows a well-balanced mix of business (43%) and leisure visitors (57%). With 79.4% occupancy from January to October 2013, the Paris hospitality market has performed especially well (+2.8% compared to 2010). A slight decrease in occupancy has been observed in all categories during 2013 (-0.9%). ADR reached 172.6 from January to October 2013. Globally, this significant rise (+15.9% since 2010) has contributed more than occupancy to the positive swing in REVPAR (142.8, +20.3% since 2010). Hotel Performances: Source: Paris Tourism & Convention Bureau 2013 Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 6
Conclusion & Outlook Positive factors which have an influence on the current Paris hotel market can be summarized as follows: The position of Paris as one of the main destinations worldwide, especially for upscale markets: positive image and rising top quality supply Fundamentals are solid and supply does not match demand except in July/August The destination is boosted by emerging long haul markets (China, Brazil ) Domestic and northern European remain resilient demand generating areas US demand is back However, the investment climate for hotel development in Paris is tempered by the following drawbacks: Depressed economic climate in France Growing competition from other European cities, especially regarding MICE activities Very limited real estate opportunities in the CBD Very high value for existing assets Horwath HTL is a long-standing member of GlobalHotelNetwork.com. About the Author Philippe Doizelet currently serves as Managing Partner of Horwath HTL Paris. Before joining Horwath HTL, he was Corporate Head of Research at Accor. Philippe s business skills include Market and feasibility Studies, Due Diligence services, Appraisals and Hospitality Strategy. He has over 25 years of International experience in the hospitality, tourism and leisure sector. Copyright (c) 2014 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 7