The economy of France has been at a standstill for a few years, but the French government expects 2015 to be turning point. French gross-domestic-product growth in 2014 was moderate for the third year in a row, reaching 0.4% versus 0.3% in 2012 and 2013, according to INSEE, the French National Bureau of Statistics.
Overall, the growth of French GDP remained well below forecast, and the French government had to review its forecasts several times during the course of the year due to challenges by the Organization for Economic Co-operation & Development and International Monetary Fund experts. However, the last IMF forecast released in January 2015 anticipates stronger growth in real GDP, which should reach 0.9% in 2015 and 1.3% in 2016.
The business environment should improve slightly in 2015. One key challenge for the government is to master public debt while boosting economic growth and employment. Public reforms are seen as encouraging signs and should accelerate in 2015 and beyond. François Hollande’s government announced it to be a rebound year, supported by favorable changes in the external environment with the decrease in oil prices, continuing low interest rates and a lower euro versus dollar.
As France remains the most popular destination for international tourism, the tourism industry remains one of the bright spots of the French economy with national champions as Accor, Louvre Hotels Group, Club Méditerranée, Pierre & Vacances and Compagnie des Alpes.
Results from 2014 are not yet available, but data from the previous year shows that tourism spending grew by 1.4% and was expected to grow by 2.2% in 2014, according to the World Travel & Tourism Council. The statistics showed a drop in French domestic travel; however, this was offset by the growth of high- spending foreign visitors. This is to say that the fundamentals of French tourism remain solid.
Investment opportunities
In 2014, as per the statistical French agency, the overall hotel supply accounted for 17,300 hotels and 637,000 rooms. The country experienced a slight increase in room supply, supported by the on-going development of hotel chains still expanding their network.
French hotel supply has remained stable in volume for several years now, and a significant share of it is obsolete or ill-adapted. This generates opportunities in the Paris area and key regional markets where hotel investment remains most wanted among real estate asset classes. In this context, hotels benefits from a robust investment climate, although the hotel landscape shows some contrasts.
- Paris, key regional cities (main metropolitan cities such as Lyon and Marseille) or tourist areas (such as the French Riviera and the French Alps) remain attractive areas for international hotel investors. In 2014 again, France represented a significant share in total Europe, Middle East and Africa transactions as a result of the sales of high-end properties, mostly in Paris. Hence, investors tend to privilege existing properties versus green field as part of their strategy to offset the risk related to the ramp-up period.
- Paris is still one of the leading hotel markets in Europe. The shortage of supply and the continuing growth in arrivals sustain high occupancy and revenue per available room, most perceptibly in the upscale and luxury market. Paris luxury market has been experiencing a continued upgrade of hotel facilities and the 4- to 5-star segment now totals 32% the global room stock according to OTCP, the Paris Tourist and Congress Office.
- The most remarkable event in Paris hotels this year was the opening of the Peninsula Paris, adding an Asian flavor to the seven Parisian “palace” hotels, after several years of heavy renovation works.
The hotel climate remains more challenging in the rest of the country, and the hotels haven’t managed to return to pre-crisis levels. Roadside and secondary business markets are particularly impacted, located as they generally are in areas most severely hit by the industry crisis.
Despite a stabilized supply, the drop in domestic demand has impacted market performances. According to STR Global, RevPAR decreased 0.6% to €112 (US$128) during 2014 in France. (STR Global is the sister company of Hotel News Now.) Paris, sustained by international demand, reached 1.1% RevPAR growth in euro terms during the year. Still according to STR Global, 10 out of 22 capitals in Europe achieved a RevPAR growth of more than 5% in 2014, when accounted for in local currency terms.
Unlike Paris, France seems to lag behind the other European markets, which have experienced an upturn in performances since 2013 including Greece, Portugal and Spain. The depressed economic climate in France over 2014 caused a drop in business travel, mostly domestic, a significant travel driver that affected regional markets.
Performance outlook
Market performances for French hotels are induced by the health of general economy and international events. Growth in GDP has historically sustained RevPAR growth, while major events such as the rugby World Cup in 2007 have boosted it. Unfortunately, no such major event is scheduled in France until the soccer European Championships in 2016.
The January 2015 terrorist attacks in Paris, and the threat of similar incidences, affected hotel occupancy and could impact hotel performances.
In this context, it is difficult to build a solid forecast, and Horwath estimates that the outlook for 2015 is on par with 2014. As a result, we anticipate that RevPAR growth for 2015 could be in the range of 0% to 2%, depending on the price sensitivity of demand.
Still, 2015 will be another vibrant year in the Parisian high-end segment with additional takeovers, renovation and construction; the re-openings of Hôtel de Crillon under the Rosewood flag in 2015 and the Ritz later that same year, and, also, Hilton putting its flag near the opera house on the former Concorde St Lazare.
Contributed by Philippe Doizelet, Horwath HTL, France