There's no slowing down demand among wealthy travelers for high-end hotel experiences in Europe and the Middle East. Hoteliers are responding to how those guests by evolving how they define luxury, price it and staff it.
“The rich are getting richer, especially in North America,” said Carine Bonnejean, managing director of hotels at business advisory Christie & Co.
She said the number of luxury hotels is increasing in markets such as France and Italy, where demand has been high for decades. North American travelers in particular have flocked to traditional European luxury destinations since the pandemic ended.
More and more, luxury guests want exceptional experiences every time they stay at high-end hotels, said Robert Mangan, operating partner at investment firm Bain Capital. That requires hoteliers to pay even more attention to detail.
And while those stakes rise every year, the demand for exceptional experiences traditionally associated with true luxury hotels is trickling down to lower chain scales as well.
This all makes defining "luxury" difficult when it comes to hotels, said Olivier Harnisch, a former CEO of Dubai’s Emaar Hospitality Group.
"Now it means something different to different people," he said.
Harnisch cited the example of "lean luxury," or hotel brands such as Ruby Hotels and Rove Hotels. London-based Ruby Hotels has 20 hotels across Europe and coined the "lean luxury" description, which essentially translates to high-end amenities with a more streamlined operating model.
"What they are doing is eye-opening,” Harnisch said.
Dubai-based Rove Hotels has 10 open hotels. While Rove's properties are classed as more midmarket, Harnisch said the brand caters to luxury travelers who decide to stay in midlevel hotels so they can spend more money on high-end restaurants and entertainment.
Mangan said he saw the competition for that price point only going one way — up.
“It is only going to grow. Wealth is growing,” he said.
Luxury hotels in Europe commanded an average daily rate of US$489.09 year to date through the end of October, which was a 5.2% increase compared to the same period in 2023. In the Middle East and Africa, luxury hotel rates for that period were $313.56, according to CoStar data.
Mario Ferraro, CEO of Smeralda Holding Group, said he also sees that as wealth, tastes and requirements change for travelers, hotel industry cycles will turn over faster and faster.
Smeralda is wholly owned by Qatar Investment Authority. Its hotel portfolio includes Cala di Volpe, Romazzino, Pitrizza and Cervo, on the Italian island of Sardinia.
“One key challenge for investors is to have that flexibility," he said. "You need to adapt quickly to keep up with customer trends and stay relevant in the long term based on quick changes."
Harnisch said that the boundary-pushing of luxury development happening in Saudi Arabia now will speed up the trajectory of luxury hotels to even greater levels.
Saudi Arabia is a key focus for Ferraro's firm Smeralda, and he notices the start of conflicts of interest between branded hotel operators and owners.
“There is very little franchise. Owner-management or third-party management, I think, is the solution,” he added.
Luxury labor costs
On the cost side, high-end hotels require a level of staff able to deliver luxury.
Mangan said a ballpark estimate is that labor accounts for 40% to 50% of luxury hotel costs.
With costs going up all the time, hoteliers need to see where they can push productivity, he said.
“Not so long ago, 100% of labor would be local; now, that has changed completely, with 90% to 95% coming from abroad. That leads to the challenge of retainment,” Ferraro said.
Speaking of his hotel investments in Costa Smeralda, the luxury resort area in Sardinia, Italy, he said labor problems are exacerbated by the need for a luxury experience, with staff that are willing to work in a seasonal destination.
He said finding suitable compensation in such an environment is difficult, but guests will demand that, and increasingly so.
For those who do that well, labor will be among the biggest opportunities, Harnisch said.
“That starts with the development, not the hotel-management agreement. [The industry is] is very good at building beautiful hotels, but we are less able to build efficient hotels. If owners are not strong enough or aware enough, you end up with an overbuilt and [under-supplied] hotel,” he added.
Some markets possess ample room to push luxury. Others do not.
“I am from Capri,” Ferraro said, “and you have to queue for everything in Capri. That’s not luxury.”
“I live in Dubai,” Harnisch said, “and over-saturation is not a problem. The city can grow.”