Accelerating global wealth drives luxury hotel performance and liquidity

Despite widespread economic volatility over the past three years, global wealth continues to accelerate. Since 2019, the number of high-net-worth individuals (HNWIs), defined as those with a net worth of at least $1 million, has grown 10.7%, reaching 21.7 million individuals globally at the end of 2022. While HNWIs represent less than 0.3% of the world’s population, they contribute nearly 70% of global spend on luxury travel. As such, it is no surprise that luxury hotel demand has skyrocketed, with RevPAR for luxury hotels generally outperforming all other classes and exceeding 2019 levels in many markets. Investors have taken notice, with luxury hotels representing 24% of single-asset global hotel liquidity through August 2023, the highest portion since 2015.  

The increased investor appetite for luxury hotels stems not only from growing fundamental performance, but also rising yields (cap rates). With some exceptions, luxury hotels have historically generated lower profit margins and lower long-term real estate yields relative to the broader lodging industry which has often precluded REITs and other institutional buyers from acquiring these assets. Instead, HNWIs, foreign investors and family offices have been the largest acquirers of luxury hotels. This has begun to change as REITs and private equity have become much more acquisitive in tandem with rising yields, evidenced by Ryman Hospitality Properties (REIT) $800-million acquisition of the JW Marriott San Antonio earlier this year. Expect institutional investment for luxury hotels to accelerate further as debt market volatility persists and luxury yields continue to trend at historic highs. 

URBAN RETURN 

In the immediate aftermath of COVID, investors predominantly targeted luxury hotels in resort destinations underpinned by historic RevPAR in many of those markets. As travelers have returned to cities driven by an uptick in international travel following the reopening of borders, investors have pivoted focus, with luxury hotels often the largest beneficiaries. 

Through August, urban markets have accounted for 57.4% of luxury liquidity, the highest portion since 2016. Cities like Barcelona, Boston, London, New York, Sydney and Tokyo have all seen significant increases in luxury hotel investment volume in tandem with accelerating fundamental performance.  

Luxury hotels, particularly in gateway urban markets, stand to benefit significantly from the continued recovery of international travel. Not only do international travelers typically stay longer and spend more, which should aid in the continued growth of ADRs, but there is also a strong correlation between inbound international arrivals and urban luxury hotel occupancy. Now that all travel restrictions have been removed, following China’s reopening in early 2023 and their subsequent removal of the ban on group travel in August, look for urban luxury hotel performance to increase even further. This should also lead to an increase in foreign hotel investment, which has been largely absent for the past three years.  

CROSS-BORDER INVESTMENT 

From 2012-2019, foreign investment into luxury hotels averaged $3.9 billion annually. As international travel resumes, so, too, should cross-border investment, which means that luxury hotel liquidity will likely accelerate even further. Look for cash-rich Middle Eastern investors to deploy capital across Europe and in select U.S. markets, such as Miami and New York. Expect safe-haven cities to remain key for luxury investment, with Asian and Middle Eastern investors likely to focus on gateway markets in Europe, such as London and Paris. In Asia Pacific, expect European investors to deploy capital into Japan, Singapore, Melbourne and Sydney.  

As the global lodging industry continues its post-COVID recovery, look for luxury hotels to lead the pack. Amidst ongoing economic and geopolitical volatility, luxury performance has remained robust and thus garnered increased investor interest. Expect traditional luxury hotel brands to seize on this growing demand and expand into new verticals, such as The Ritz-Carlton Yacht Collection or Aman’s private membership club, as they look to own the entire traveler experience. This in turn should create new investment opportunities as investors look to capture an increased share of the growing HNW population.  

Story contributed by Zach Demuth, global head of Hotels Research, JLL Hotels & Hospitality Group