NASHVILLE, Tennessee — The hotel recovery has been led by the luxury segment in virtually every market.
Alex Dragan, senior director of global analytics at Four Seasons Hotels & Resorts, said luxury’s domination of hotel demand appears likely to continue, with a reported $80 trillion to be inherited by millennials from baby boomers by 2045.
Luxury hotels must ensure they are relevant for that new audience and marketing should be updated, he said during a panel titled “Luxury’s Trajectory” at the Hotel Data Conference.
Dragan added that with every year passing since the pandemic, there has been a shift in the core demand of health and safety to one of service.
“Guests are becoming more critical, so ask, what else do they want?” he said.
Dragan said many luxury hotel chains now provide residential offerings, private jets and yachts, along with advanced bar and restaurant choices.
“More of their travel is off the beaten path and where it benefits the local. Influencers are important, as are foodie destinations and the wellness wave,” he said.
Choices abound and are increasing in the luxury hotel segment, said Aoife Roche, STR's senior director of commercial hotels. STR is CoStar's hospitality analytics division.
Back in 2008, STR classified 15 hotel brands as luxury, Roche said. Today that number has grown to 52 brands.
Roche said luxury was the first segment to recover from the pandemic, and its growth trend has not abated.
“In 2023 that has continued, but [luxury spend] has changed. Business travel and meetings have come back,” she said.
She said CoStar hospitality data suggests that luxury can maintain its current high performance, especially in the U.S.
“Luxury demand is slightly ahead of average U.S. levels, but it has normalized, a word I think you will hear a lot during this conference,” Roche said. “Much depends on where you are. There is a different experience in an urban city than say a resort in San Diego.”
Nashville, the host city of the Hotel Data Conference for 15 years since the event's beginning, has seen its share of luxury hotel growth, Roche said.
“There were 13,400 rooms in the luxury pipeline in 2008, and there are 17,500 in 2023. We would probably not have looked at Nashville in 2008, but look at it now,” she said.
Dragan said for established luxury firms such as Four Seasons, the enlarged pool of luxury flags is “not frightening at all. It is a huge opportunity.”
He said the increase in pipeline does keep brands such as his company on its toes, even though he added he does not see true luxury in hotels with more than 500 keys.
“That is not luxury,” Dragan said. “The upcoming brands are doing an amazing job, and the sector is maturing, so more people are looking at it and want to be part of it.”
Roche said the data backs this up.
In North America, there were 27,000 luxury rooms, or 14% of the entire existing hotel supply, she said. In Europe, there were 19,000 rooms, or 18% of the existing supply.
“There has been phenomenal growth in average daily rate in luxury, but the other segments also are doing well, too, although luxury retains gold compared with 2019, seeing an 18% increase in revenue per available room from 2019 levels,” she said.
Rediscovering Europe
Luxury hotel demand in the U.S. has always traditionally been led by leisure and bleisure travelers. But now, the luxury segment is earning its share of spend from business and corporate travelers.
“We’re now seeing more business guests, with some bleisure, which constitutes a pretty significant guest and the highest revenue-per-guest portion. We also have a smaller number of business-only travelers,” Dragan said. “Revenue managers need to look at that business to see that there is not a too-large gap between negotiated rates and leisure ones.”
Roche said that revenue managers have held a lot of rate premiums at luxury properties, although there does look to be a softening in year-over-year terms.
“Any [rate] declines seem to come from not getting the right customer segmentation,” Dragan said.
Roche said there might be a little market fatigue, although in the U.S. only two of the top 25 markets in 2023 are showing no rate growth year over year.
Florida, for instance, has good weeks and bad weeks, but ADR is well below 2022 levels, especially in luxury, she said.
One reason for this could be the rediscovery of Europe by U.S. luxury travelers.
“There is a mass exodus of Americans to Europe, where all COVID-19 restrictions have been lifted, air capacity is on the rise and visa issuance is much easier,” she added.
STR data showed occupancy has increased in key European markets, with demand for Amsterdam up 36% year over year, Frankfurt up 36% and Athens up 31%.
“No one should be surprised. The [U.S.] dollar is strong,” Dragan said.
He added any softening should have revenue and sales managers looking to optimize partnerships with online travel agencies, although he said there might be a lessened need to do this in the U.S.
“Globally, yes, for that extra 5% to 10% to get our numbers. It comes down to a good third-party distribution strategy. … ADR is important, but we are here for the long run, so are we continuing to [conduct such strategies], adding to the value of the asset and looking after shareholders, staff and locals?” he said.
Roche said it's likely that globally in 2024 luxury occupancy will be at 70%, ADR at $441 and RevPAR at $307, while for 2026, luxury occupancy will be at 72%, ADR at $466 and RevPAR at $336.
“What we’re seeing in Europe this year, we expect to see next year in Asia,” she added.