Not a week goes by without announcing the creation of new upscale and luxury hotels, here and there, in the biggest cities as well as in the depths of the countryside. . It’s star fever! And yet it is becoming increasingly questionable whether customers will be there to fill these 4 and 5 star homes. And especially how much will be paid by paying the fair price.

With 1,988 hotels classified as 4 stars(1,673) and 5 stars (315) in mid-May 2015 (compared to 898 in 2010!), The premium hotel portfolio has more than doubled in 5 years in France.

In terms of the volume of rooms available, it swelled by 210%. It must be said that if there are more and more creations in these categories, a large number of hoteliers have taken advantage of the minimalism of the criteria of the new classification standards, published in 2009, to ask for one more star compared to their previous ranking. By having made investments to embellish and enrich their service. Or not. Most often: not (or very little).

A move upmarket in the French hotel offer, as we often read? No, just an administrative and mostly fictitious rewritein the field.

If many investors now want their 4 or 5 star hotel, but also mayors for “the international influence of their city” (sic), they are strangely less likely to ask the question of their profitability . So no one seems to doubt.

Because in recent years, occupancy rates have remained at the top of the range, overall, still around 65%, all regions combined (sources INSEE), as in 2010. It is 5 to 8 points better than in the lower categories (from 1 to 3 stars). What to stimulate to open beautiful and expensive!

Except that average room prices have fallen significantly by nearly 25% over the same period of time. While observing average investment costs having taken a 30 to 50% overweight. And it’s not over.

A city like Greater Lyon, for example, with its 4,200 4- and 5-star rooms, sees their average room price peak at just € 115. A misery. This means that there is clearly not enough clientele to occupy these hotels at the rates that should normally be set at the top, given their category. In addition, not content with the dangerously eroding occupancy rates in the capital of Gaul, several new establishments are being announced there, including a 5-star with nearly 150 rooms and a 4-star with 460. Disturbing. Beyond Lyon, it is a very comparable situation in many provincial towns.

Naive arguments and flawed reasoning

The reasoning remains the same to justify the creation of luxury hotels, with several erroneous prejudices.

1) – We think first that a luxury hotel will attract a high-end and international clientele. Wrong, of course. Supply does not create demand in this area. This clientele goes to a destination to do something for business and / or leisure and in this case stays at the hotel. We do not motivate ourselves to go to a city for its hotel (s). It is therefore necessary to create attractiveness before launching hotel projects.

2) – There is also the “  you have to open an upscale hotel because there isn’t one  ”. Except that there may be a reason (market reality) for there not to be. Being able to accommodate Johnny Halliday in the sumptuous during his tours for a few dates every 3 years or even from time to time a passing minister is not enough to hope for a return on investment.   

3) – We must not forget either that operators like more and more to classify their establishment 4 to 5 stars to have fun , to promote themselves, forgetting that it is a real positioning on the market , with an image, prices and the service that should go with it. So expensive requirements. Even if few customers now take the stars as a criterion for choosing a hotel.

4) – Finally, we think that a castle , a pretty ruin to renovate, a historic manor house or a monument to rehabilitate could be beautiful hotels. This is often the case. But there too, for which clientele and what profitability?

Because very often the demand is not quantified. There will certainly always be some, or a few, clients to stay in luxury; but how much? Usually not enough to make the business profitable when looking at the market. Especially since the cost prices soar to be able to set up in the hyper-city center. When in addition we take a diva of design and architecture to sign the establishment, the invoice is then delivered in Rolls-Royce with white gloves and silver plate.

Suddenly, the hotel, which lacks customers, lowers its prices and its dumping furiously competes with the hotels in the range directly below. And that causes deaths, sooner or later. Including for the upscale or luxury establishment concerned. Its operator will then be tempted to reduce its charges and reduce the quality of service.

Infernal spiral to scare away the few customers who would have come and to seal the e-reputation, which has a power of life and death on a hotel, especially in the premium .

How do we get there?

In most cases, no market / feasibility study is done to verify whether there is a concrete and real demand (which will be effective) for a high-end hotel industry. We are satisfied with “there is none, it is lacking”. Or, studies are complacent, as if lying about the future of an expensive project could do someone a favor. Not to mention that everyone – the city council first prescriber and requester, but no one who would put any money into the case and feel responsible for anything – thinks it would be good if there was a hotel. luxury in the city. Who ends up becoming “afraid of the city”.  

There is no shortage of examples – numerous – of dormant hotels , because their investors and operators believed that screwing up a 4 or 5 star sign would be enough to achieve success.  

As always, the madness of the high end will calm down in a few years when we realize that it was unreasonable and that we will count the crippled and dying. In the meantime, how many projects are going to collapse and put people on the back burner? Nobody knows. We prefer to fantasize and look elsewhere.

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