Can the luxury end of the hotel market recoup its immense investments once the Olympic tourists have gone home?
When Barbra Streisand stayed at The Dorchester she demanded loo paper the precise colour of her complexion.
The world-famous venue also indulged a certain Ms Britney Spears with stripper poles and a chef from Nando’s. Mariah Carey’s dogs required baths of mineral water at Claridges, which also dutifully refitted its bathrooms with gold taps, as commanded.
Welcome to the land of London’s luxury hotels.
Saudi royal Prince Alwaleed bin Talal bin Abdulaziz al-Saud’s bought the Savoy for £250m in 2005
The market is the strongest of its kind in Europe – and growing fast. There will be 23 per cent more luxury hotel rooms in London in 2014 than there were at the end of 2010, according to research from PricewaterhouseCoopers.
This year saw the opening of the £200m St Pancras Renaissance, resplendent with Marcus Wareing restaurant and 38 suites on top of its 245 bedrooms; and the London Syon, part of the Waldorf Astoria stable and based in the 80-acre Syon Estate near Heathrow.
And then there’s the W London, the Corinthia, the Bulgari, 45 Park Lane, the reopening of the Savoy – the roll call goes on.
Who’s buying London hotels?
“London’s trading so well that everyone’s trying to get in – there’s a lot of money to be made here,” explains Liz Hall, head of hotels at PwC. She says London’s high barriers to entry are an investment incentive: the city is seen as a fairly safe place to put your Sterling.
“A luxury hotel here is a trophy asset as well as a good business case. There’s a lot of cross-border money coming in, particularly from Asia and the Middle East,” Hall adds.
A notable example of investment includes Saudi royal Prince Alwaleed bin Talal bin Abdulaziz al-Saud’s £250m purchase of the Savoy in 2005. Another is Qatari Holding’s May 2010 purchase of Harrods.
Earlier this year both the Qatari National Investment Fund and the Chinese government were eyeing a 35 per cent stake in the Maybourne Group (which owns Claridges, the Berkeley and the Connaught). They were pipped to the post by the Barclay brothers a couple of weeks ago.
Such investments are indicative of a broader global desire for London’s property assets.
But this worldwide fashion for buying luxury hotels, and such a fecund blossoming of new ones, is also symptomatic of the sprint towards the Olympics.
Will the Olympic effect last?
Hotel industry analyst Rubicon has forecasted a doubling in London hotel prices during the Games. Then there’s the brand kudos of locating in the capital during such an important event.
But cynics are nervous about a post-Games slump in hotel demand, and the trickle-down effect on the rest of London’s leisure industries.
Rubicon predicts an 80 per cent drop in corporate booking for summer 2012 taken as a whole, because business travellers will be priced out the market during and around the Games.
Longer term, there are fears that the surge in luxury room supply will leave London echoing with empty en suites in the years following 2012.
“There’s a risk these hotels will cannibalise each other,” Hall warns. She says central London luxury hotels should survive because of a steady stream of tourist and business travellers, “but further out east will be a tougher environment to operate in.”
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John Strauss has been general manager of the Four Seasons Park Lane for 17 years, most recently overseeing its £125m, two-year refurbishment. He’s more stoic about the effect of the Games. “The Olympics is a three-week period. It’s very exciting, and we’re all thrilled, but we should keep it in context.
“A three-week window in a 52-week year, during August when we would be full primarily with luxury leisure guests anyway, is in many ways commensurate with normal annual trends.”
Strauss says eight out of any 10 given years are usually “very successful” for London’s very top hotels, regardless of one-offs like the Olympics. Regular events such as the Chelsea Flower Show, the Henley Regatta, Queens and Wimbledon Tennis – which generate a roughly 50-50 mix of leisure and business travel – all help.
Strauss believes London’s appeal reaches far beyond 2012. “If you try to list cities in the world that are true gateway cities, with a substantial amount of travel to or through business and pleasure, London is probably leading, among not many others – New York, maybe Hong Kong, but where else?”
He says that London’s collection of luxury hotels is “probably the most fabulous in the world” for its diversity in interior design, size, feel, and so on. “In many other cities around the world five-star hotels are rather homogenous.”
The trend: uber-luxury
The market for the highest end of luxury doesn’t seem to be losing steam either. The Four Season Park Lane’s refurbishment saw the ratio of suites increase to 25 per cent of all rooms.
Claridges, The Berkeley and the Lanesborough have an even higher suite-to-room ratio than that. By the by, top spots in such hotels command several-thousands of pounds (see the image gallery above for examples).
Yet there is anecdotal evidence that demand for such riches will hold up. The number of people worldwide with $1m in cash grew by 17 per cent to 10 million in 2009 alone, even with the global financial crises biting into fortunes everywhere. Forbes’ annual list of billionaires swelled to 1,210 this year, up from 2010’s 1,011.
But what does the global Black-Amex splurge on London’s luxury hotels spell out for the rest of the market?
The luxe effect on the wider hotel market
Miles Quest of the British Hospitality Association says the growing number of luxury hotels will have a positive knock-on effect for the broader leisure and service industries. “No one who stays in the Dorchester is going to stay in a B&B in Bayswater – they’re not competitors.
“But if luxury hotels didn’t exist in London it would be catastrophic for other industries. The high end of the market brings in people who spend money in restaurants, in casinos, theatres and cinemas.”
Quest also says luxury hotels are important for keeping quality levels high in the lower-priced echelons of the industry.
His worry is for the hotels outside the centre of the city and those towards or beyond the M25 perimeter.
In the post-2012 years, these could see business sucked away as tourists, spoilt for choice in central areas, look elsewhere. With 30,000 new hotel rooms opening across the country this year and next, his fears for the long term seem justified.
Back within the capital, Quest argues London needs to remain good value for money. “They’re competing with all the major tourism destinations in Europe, and other emerging cities. London has to be careful of its prices.”
The post-Games period seems a rocky road for London hotels, but the very wealthy will always have a place to call home in the capital and opportunities to spend thousands of pounds in an evening will never dry up.
those of us able to enjoy such treats, London offers them in abundance; for the rest of us, well, there’s always Travelodge.
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