Parisian luxury hotels: From gloom to boom?

With record room prices of EURO 1,000 (USD 1,297) and occupancies of 95 percent, the luxury hotel sector in Paris is flourishing. But is the market ready to absorb a string of new openings forecast for the coming two years?

It's back in October 2006, when hotel news headlines in France announced that Parisian palaces—ultra-luxury hotels, such as Hôtel de Crillon and Hôtel Plaza Athénée—were going "full sail."

In those days, Paris’s six legendary luxury properties—Hôtel Le Bristol Paris, Hôtel de Crillon, Four Seasons Hotel George V Paris, Le Meurice, Hôtel Plaza Athénée and the Hôtel Paris Ritz—were notching up average occupancy of 77.5 percent, room prices of EURO 725 (USD 940) and 15 percent hikes in revenue per available room post 9/11, according to a study from French hotel industry consultants, MKG Consulting.

Thanks to this "very strong demand for luxury hotels," the Parisian market could easily absorb newcomers, the study concluded.

Yet despite the relative resilience of the luxury hotel sector, occupancy rates in 2009 fell as low as 66 percent and RevPAR by 10 percent - 18 percent.

Now the gloom is turning to boom. Euphoric news reports proclaimed: "An Exceptional season for Parisian Palaces"; "An Outstanding Year"; "The Hotel Plaza Athénée is a Stranger to the Crisis" as several of Paris’s most prestigious hotels reported July occupancies of 85 percent to 95 percent.

"This has been the best July in the history of the Bristol," said GM Didier le Calvez of the 93 percent occupancy.

"It iss a record year," said Michel Jauslin, GM of the Park Hyatt Paris Vendôme. "Since the opening of the hotel, we have never had such high occupancies and average room prices."

Le Calvez is confident of maintaining exceedingly high occupancy from September to November, after a traditional August trough of about 75 percent. "At the Bristol, we are offering about 40 interim jobs due to the current activity."

A soft recovery

Just a few weeks ago, MKG cautiously heralded a soft recovery for French hotels.

"The upscale sector is showing very encouraging signs of recovery," said president Georges Panayotis after a 20 percent bolster on RevPAR in May.

Meanwhile, the STR Global Trend Report for Paris upscale chains showed occupancy rates in June peaked at 87.4 percent, which is a 14.4 percent increase on 2009; RevPAR jumped an average 7.8 percent for the year to date, with demand and revenue up nearly 8.5 percent.

While haute-luxury hotels are clearly back in hot demand in the world’s leading tourist market, what about supply?

During November 2006, when the opening of Fouquet’s Barrière brought the number of upper-end Paris hotels to seven, Christian Meunier, joint chairman of the executive board of Lucien Barrière Hotels said in French business magazine, Challenges: "There is a shortage in Paris of extremely luxurious hotel rooms to meet the demand of emerging economies. The opening up of China should bring two million extra tourists in the next five years. The current capacity of the Parisian palaces is only 1,160 rooms—four times less than in London."

Since then, supply has remained almost static, despite continued warnings from industry analysts of a severe shortage of luxury beds. Even with occupancies around 77 percent, hotel industry analysts, such as KPMG, said the number of haut de gamme room keys could easily double.

Now things are set to change drastically, in the words of Jauslin, as four offshore rivals join the ranks of the Parisian palaces. "In two centuries, the industry has never witnessed that." 

With the openings of The Royal Monceau-Raffles Paris in autumn, Shangri-La Hotel Paris in December, the Mandarin Oriental, Paris mid 2011 and The Peninsula Paris by the end of 2012, the number of luxury rooms commanding prices topping EURO 700 (USD 903) a night will exceed 1,600.