HAF asks “Can this increase in supply still be supported by diverse markets? »

A rebound is clearly present, with growth confirmed between March and April in Europe, depending on the country. Changes in RevPAR from June 2021 to October 2022 compared to the same period in 2019 show that countries are gradually emerging from the crisis. Spain was the first country to recover in March, followed by France in April. The conditions were in stark contrast to countries that had emerged before the crisis or, conversely, to countries that were more permanently affected, such as Germany.

The most interesting finding is that the countries that made the best progress between April/May and October had a good balance between business and leisure customers, which boosted their performance.

In the French market, the recovery is based on average prices for the entire period from January 2020 to October 2022. During the high season periods of May, July and August, average prices are 25% higher than in 2019 during the same periods. In some cities, this average price has doubled compared to 2019. These very high prices were made possible by the return of national and European leisure customers who wanted to take advantage of the summer after a two-year crisis. A favorable euro/dollar parity for Americans also keeps these customers coming back. The return of leisure and business groups has also allowed hoteliers to raise prices.

There are contrasts between different categories, with the super economy segment being the fastest growing segment compared to other segments. The high-end segment has the most potential to increase RevPAR. The effect of free time with school holidays or long weekends in May is also visible on performance. Comparing the periods of increase in RevPAR between weekdays and weekends, it appears that the increase is driven by the return of leisure customers.

If we look at the longer term, we see that there are strong foundations. The market has been affected by crises (financial, economic, political or security) on several occasions when occupancy rates and average prices have fallen, but growth has returned fairly quickly. In the French market, RevPAR increased by 14.5% between 2001 and 2007, then by 18.7% between 2008 and 2019. In these same periods, the growth in the European market between 2001-2007 was 15.8%, and between 2008-2019 was 25.8%. Observed rebound with each sharp drop.

By comparing this performance data with changes in GDP, we see a market anticipating changes in GDP. RevPAR systematically declines the year before GDP declines. This cyclical market has fundamentals that remain high.

The market was initially structured by an increase in supply, which resulted in a decline in the average price, as the development of a super-economic supply affected average prices. This new offering replaced the old establishments. After this period of cannibalization, supply stabilized with a strong increase in average prices (+3.8% over the period) and an occupancy rate that remained relatively stable. Then comes a new period of increased demand, the result of a decrease in supply. The decline, caused by the closure of some businesses that are aging or unable to meet safety and accessibility regulations, is an effect we can compare today to a tertiary decree. Then we started increasing the supply again. The question today is whether this increase in supply can still be supported by the various markets, or whether we will once again witness cannibalism.

The challenges for the hotel market today are threefold.

• Investment: construction or purchase requires investment and financial institutions are now more and more careful. In addition to this, costs also increase. So in 2022, we saw more acquisitions than creations of ex nihilo businesses.
• Rising land costs: Development zones in France are highly concentrated in areas where land prices have risen sharply. For example, land costs in Aquitaine have nearly doubled in 10 years, as have Brittany and Normandy. A factor that increases the cost of construction and operation.
• Differentiation: today you need to innovate to stand out. Unless you’re a business with a differentiating proposition, it’s an illusion to think you can come into a market today and achieve the same occupancy rates as existing businesses.

Focusing on the Bordeaux market, the destination is characterized by relatively high occupancy rates over the period and a significantly increased supply since 2017. If we compare the performance of new entrants to more traditional brands, if the differential was high during the crisis, the delta is absorbed after the crisis period with the same activity levels.

This exercise in the Toulouse market, which is quite different from Bordeaux with lower TOs and a more balanced leisure/corporate clientele, demonstrates that new brands, with a lower business clientele than Bordeaux, are also differentiating beyond historical brands. crisis period. Therefore, this factor is important for leisure customers.

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