There is good news in the luxury hotel sector, as it continued its recovery throughout 2022, with more good news on the way. The demand for high-end hotels in the Americas and the Middle East and Africa (MEA) area was almost identical to that of three years ago. In addition, demand for European luxury-class hotels was only off 12 per cent from its 2019 high level. And, now that China and Japan have terminated their protracted pandemic shutdowns, intra-Asian travel is expected to increase and some additional international inbound demand.
The continued demand from leisure tourists as well as luxury and incentive groups, has been advantageous for high-end hotels and resorts all around the world. However, the revival of corporate transient demand, impacted by big businesses and their travel spending, is still the only missing component. This is partly because online communication and meetings are proving effective, and the impending recession is dampening travel costs. In addition, there is now a greater emphasis on reducing carbon emissions from travel, particularly in Europe. In 2023, these factors are also anticipated to affect the high-end corporate demand.
In most global regions, occupancy has recovered due to the greater room demand. However, the previously indicated decrease in demand relative to 2019 and ongoing new supply growth has led to reduced occupancy levels that are still below 2019 peak figures. On average, approximately six out of ten rooms were filled last year across the Americas, Europe, and MEA. The findings are significantly weaker in Asia, where on average more than half of the rooms were vacant every night for the whole year.
Room rate increase was and continues to be the shining light in the recovery of the world’s premium hotels. The average daily rate, or ADR, has risen by more than 30 per cent globally over the past three years, with Asia being the major exception. In other words, despite reduced occupancy rates, hotel owners could still raise room rates to take advantage of the increase in demand. Anecdotally, owners of high-end resorts report little pushback from wealthy tourists eager to pay more for suites with ocean views or interconnecting rooms to accommodate multigenerational travel groups.
Price rises in Asia have been challenging because of low demand and occupancy, particularly in China and Japan. Over the past three years, the luxury class ADR has climbed by only 5 per cent, significantly less than the rate of inflation in the region. Realistically speaking, hotel prices in Asia are presently lower than in 2019.
ADRs have reached all-time highs as a result of rising high-end room rates. The average day rate in the Americas and MEA is above $300; Europe’s is over $400. With premium hotel rooms costing, on average, only half as much as those in Europe, Asia also follows behind in this category. These averages suggest that many hotels and marketplaces charge significantly more than $1,000 per night.
Major European cities like Paris and London saw very high ADRs and substantial rate growth due to their popularity with American tourists during times when the U.S. dollar enjoyed a favorable exchange rate.
Rate increases in local currency were even higher. Dubai continued to be a preferred location for luxury travelers while hosting several significant events. Operators took advantage of the inflow by raising rates by nearly 50 per cent. On the other end of the scale are Asian cities that, for a while, relied almost entirely on local tourism and staycations. Room rates should rise as these marketplaces reopen for Chinese and foreign tourists.
It is expected that demand and room prices will rise in the luxury hotel sector globally in 2023. However, high-end tourists shouldn’t be significantly affected by even a slight economic downturn because some are still trying to make up for lost vacation time from the previous two years. Additionally, businesses are anticipated to keep adopting exclusive rewards and team-building trips to inspire employees and top achievers.
Corporate transitory demand is projected to remain weak, and hotels in central city centers will likely have decreased occupancy due to this shortage. However, luxury hotel and resort room rate increase is anticipated to continue, improving performance outcomes for hospitality properties worldwide.
Source: CoStar
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