PODCAST: Why global investors are returning to luxury hotels

Listen to experts talk about the growing investor interest in the luxury hotel category

May 06, 2024

The pandemic was difficult for hotels, with lockdowns and health concerns keeping people from traveling too far from home. When and whether they’d recover was questionable.

But the turnaround for the luxury end of the sector has been noteworthy.

Zach Demuth, JLL’s Global Head of Hotel Research, says that the global hotel liquidity finished at $51 billion last year, noting that more than 20% of the single-asset liquidity was derived from luxury assets. It was one of the highest ever recorded in the hotel sector, according to JLL data.

Now, he says, “Global investors are setting their sights on the luxury sector.”

Rising demand can be attributed to two main drivers: the improved performance of luxury hotels and appealing profit margins. Due to higher profits, returns for luxury hotels are also unrivaled compared to recent history.


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Luxury hotels are likely to see strong performance this year again, according to JLL’s Global Hotel Investment Outlook. This prediction is fueled by the intermingling of everyday living with travel and a spike in global wealth, subsequently expanding the client base.

“Luxury, in its current interpretation, has veered away from traditional formalities,” says Marc Socker, who manages a real estate and hospitality portfolio and co-CEOs the Maybourne Hotel Group. “Instead, it has evolved to be more culturally and demographically inclusive, underscoring a significant departure from old-fashioned exclusivity.”

Listen to Marc and Zach talk about what’s next for luxury hotels on Trends & Insights: The Future of Commercial Real Estate.

James Cook: Back during the pandemic one category of investment property that really struggled for a minute were hotels. I think there was a real worry as to when travelers were going to come back to them. Well, what we know now is that that entire category has really been pretty resilient, and luxury hotels in particular have been showcasing this real resilience and making a pretty remarkable recovery.

Zach Demuth: Global investors are looking to the luxury space as a way to hedge against inflation. If we look at the construction of the composition, I should say of hotel liquidity, it's about $51, 52 billion US dollars global hotel liquidity last year. And nearly 20 percent of that came from luxury assets, which as a proportion is some of the highest we've ever seen.

And I think that's driven really by two things. First is this growth in luxury hotel performance. When performance is up, typically investors gravitate towards the space. I think secondly, you look at the yields that many luxury hotel assets are providing, they are not only higher than general interest rates, but also higher than they've been before. I think what really indicates this and we're something we're really excited to see is all the new capital coming to hotels, specifically for luxury hotels.

James Cook: That is Zach Demuth, JLL’s head of hotel research. So, Zach recently published a new hotel investment outlook report, and he wrote that luxury assets are going to be the star performers this year in the hotel sector. And that is partly because of the line between everyday living and traveling is kind of getting more blurred and intertwined. And also, there's been this overall boom in global wealth. And with that, they're seeing a larger group of potential customers.

Marc Socker: Luxury is less about the formality and what the traditional luxury was it is now very diverse from a cultural perspective, from an age perspective, and it's very inclusive. Hospitality has to be inclusive, not exclusive. And I think that's one of the big changes I've seen in the luxury hotel space is the inclusivity versus that exclusivity.

James Cook: And that is Marc Socker. He heads up a real estate and hospitality portfolio. And is one of the co CEOs of luxury hotel brand Maybourne. On this episode of Trends & Insights: The Future of Commercial Real Estate, Marc and Zach talk together about the remarkable rise of luxury hotels. The resiliency that they've shown coming out of the pandemic. The changing way that people are viewing luxury experience. Plus, the huge interest that this sector is getting from investors.

James Cook: This is Trends & Insights: The Future of Commercial Real Estate. My name is James Cook, and I am a researcher for JLL.

Zach Demuth: When we look at luxury specifically, coming out of COVID, the hotel industry broadly was impacted pretty severely for somewhat obvious reasons. People just physically couldn't travel due to restrictions. Luxury was one of the few exceptions. It was impacted very negatively initially, but then it recovered very quickly. And a lot of that is because unlike prior economic shocks, where the wealthy populations were hit the hardest, that really wasn't the case during COVID. In fact, more money was pumped into the system, both in the U S and across Europe. And that really positively impacted the luxury sector.

My name is Zach Demuth. I'm the global head of hotels research at JLL hotels and hospitality group. And our group leads trends and insights for the broader hospitality industry hotels, of course, being the epicenter of that, that recognizing that hotels are of course, a consumer business, we spend a lot of time on travel trends and what that means for hotels, operators, investors. For investment trends and operation trends across the entire ecosystem.

And so we saw luxury hotels recover very quickly with average rates, that being the amount of money that the average guest pays to stay there surpassing pre pandemic levels very quickly, by early 2021, mid 2021, and then demand more broadly seeing additional recovery. I think what's really important just to point out is that the high net worth population, which is about a third of a percent of the global population contributes about 70 percent of the global spend on luxury travel. And so while people might think that the high net worth population is very small, it is, it is hugely impactful and hugely important for the health of luxury hotel industry.

And it's why with this population really not seeing much of a negative impact and seeing continued growth, we see such strong performance for luxury hotels.

Marc Socker: The rates that are being achieved in the luxury market in both urban and resort destinations post COVID have been you know, extraordinary.

I'm Marc Socker. I head up a real estate and hospitality portfolio for a Middle Eastern family office. And I'm also one of the co CEOs of Maybourne.

 I think that statistic of you know, it's 60 percent of the luxury spend is by high net worth. So I think what's interesting again on that is our research shows us that of that 60%, about 60, 70 percent of these people Consistently believe they're going to spend more and more on luxury travel and hospitality, hotels, airfares, et cetera, than ever before.

We certainly see it. I think we see people in the post COVID environment, potentially more than before, looking for experiences, looking to experience new things in different parts of the world. And I think quite staggeringly, the number of high net worths growing every year from all sorts of different parts of the world, again, are extraordinary.

 People are starting to eschew the idea of, you know, products, luxury products, and actually going a bit more for luxury experiences and luxury travel. And we see that in the family office I work for, we also invest in luxury fashion. We own fashion brands, we own retail businesses, and some of the fastest growing parts of the fashion industry, for example, at the very, very high end is the circular fashion.

So people with their socially environmental conscience, driving their decisions, they don't necessarily want to buy and purchase all of these luxury goods anymore. They'd rather swap it or do secondhand, et cetera. And the disposable income they have, they want to spend on something they can put on social media and just have these experiences.

James Cook: I love this trend of experiences over items. So, what is the industry had to do? Do you have to constantly be thinking about new ways to make your properties experiential?

Marc Socker: Yes, of course. I mean, I think it's, you know, it's what we've always done, to be honest. And I think, you know, our hotels and Mabel and Cloud is in particular is world famous for this. always makes me laugh where the guests come and they find out who the CEO is and they want to provide feedback and comments, et cetera.

And very often these people will say, we had an amazing experience. This particular member of staff gave us an experience we couldn't even have dreamt of, and these people, they knew what we wanted before we knew it. and I often quite say, and what about the product? I've spent very, very significant money on the product.

What's the product like? Do you like that? And there's a given, yes, the product's great. It's fantastic. There's an assumption that a luxury product, if you're going to spend a thousand pounds, 2000 pounds, et cetera, et cetera. is going to be a very, very high standards. But what they can't guarantee is that experience they get, the personal interaction, et cetera.

So, we just had to sort of sharpen up on that, constantly provide the experience, constantly provide that level of service, and try and be authentic, and try and be you know, market leading and the first to do various things, and provide them the experiences. And we've always done it and it's just, it's a bigger, more competitive marketplace never before.

So, we have to be consistently good.

Zach Demuth: Interesting. If I could just say one thing, Mark, you know, so my background prior to joining JLL, I worked for Ritz Carlton for almost 15 years, which in many ways pioneered some parts of luxury. And I think to Mark's point, it was always taught to Ritz Carlton is anticipating both the expressed, but more importantly, the unexpressed wishes and needs of guests. And so, the product and sort of the baseline expectation is that if a guest asks for something, you fulfill it. But what luxury does, and I think that's what really sets true luxury properties apart is providing service that's unexpressed by the guest, but that the guests to your point, Mark, like they want it so badly, but they don't know how to express it.

And you can provide this experience that is truly unique, truly fills a need. And it needs to have the backdrop of course, of the product and everything else. But that to me is what sets luxury apart from the rest of the industry.

Marc Socker: Absolutely. But it's the using digital, using technology today to second guess what they need, but also to have that touch point with them throughout their journey, so as they're looking to book when they're with you and then post and then constantly communicating with them, etc.

So, you know what they want, you know what their favorite drink is, you know what favorite pillow they have, you know where they like to go, you know they like tennis, so you give them a specific gift of experience that's related to tennis, you know they come to London for the horses, for Ascot or something.

And then we consistently work that through and then work out how we can maintain that relationship with them and obviously their fair share of the wallet.

James Cook: I want to dive into that a little bit more, Mark, because technology I think of a luxury experience. I think of it as a human experience, right?

So, the technology is behind the scenes, primarily?

Marc Socker: 100 percent back end the human interaction is absolutely critical. These guests do not want to be, checking in virtually They want to know there's someone there They don't necessarily want the traditional check in desk and you queue up and you go and get your key, etc But they want to know there's someone they can talk to and have that experience throughout.

So, you know, we have butlers throughout and, you know, guest experience people, you know, and the concierge and the front of house is a huge part of the business we run. But no, the personal interaction, touch and luxury, is critical.

Zach Demuth: Yeah. And I think just to add on that, I do a lot of work with Virtuoso, who's the luxury travel consortium books about 50 percent of global luxury hotel stays around the world. And their CEO says pretty consistently that we should automate the predictable and humanize the exceptional. And so I think to me, that really keys on what Mark was saying is that there's a lot of stuff behind the scenes that technology can really help with, right?

And the reality is that they can have a large impact on the guest, but ultimately, the guest wants to see a person. There needs to be that human element that needs to be that intangible service. And I think, again, using technology to know what a guest likes to do, likes to go, their service, the kind of experience, but then having humans implement that and have that human touch is so important.

Marc Socker: Yeah. The tech and the data also can predict where the customer journey's going, what they want, customer behaviors, but it can't provide that well, moments that, that moment you really remember and experienced. It can't do that.

James Cook: Speaking of wow moments, I know that you've got marks and Michelin star destinations in your portfolio.

And we'll talk about food as a part of the experience, how does that play? I mean, do you have visitors who are just coming because of food expectations that they have?

Marc Socker: I'm not sure if we necessarily have guests staying in the hotels. specifically for the food experience. But, food and beverage, restaurants, events, bars are an incredibly important part of the fabric of any hotel. Hotels are destinations, and if you think about the Maybourne hotels in London or France or the US. We're central parts of the community. So, we provide destinations So the Connaught for example has three world leading bars where people are queuing to get in at five o'clock every evening, people come, and they flock to the bars. the idea that you have these amazing restaurants within an asset when you're looking to book and you're looking to choose where you stay, of course it helps.

So, for example, we have an incredible restaurant at the top of the Mabel Riviera with Colagreco, one of the most famous award-winning chefs in the world. That probably does attract a guest, not just the local market, but someone to come and stay in the hotel because that's more of a destination rather than urban locations. Hotels to me, or its real estate and you have lots of different business lines within it, whether it's spa and wellness events, restaurants and garages, we have an art gallery. We are really almost like a city within a city.

James Cook: I want to think about where people are coming from and where they're going to and how that might've changed. Mark, I'll start with you, do you see that the sources, the regions where visitors are coming from, has that shifted in recent years? And I'm kind of thinking about Asia. Has that changed at all visitors coming from Asia.

Marc Socker: I think holistically, yes, well, post COVID, I don't think we've seen The rebound of the Chinese inbound traveler yet. I do believe we'll start to see that a lot more in 2024 and 2025, especially into Europe. I have been traveling into Asia last year, but I think we'll see them. From a Maybourne perspective, we're very predominantly a us based business in terms of our demand generation that hasn't particularly changed or be it. If you then look at the segmentation other than that, then you're seeing a lot more representation from different countries, from Asia, from Latin America, from India, Africa, et cetera.

There's definitely this very strong, growing high net worth and growing middle and upper classes that have the propensity and the desire spend and travel to luxury destinations. So, we're seeing a change in in terms of it's getting wider and more diverse.

But I think what we're also seeing is, from a demographic perspective, a much younger traveler, and if you look in Claridge's, you know, back in the day, 30, 40 years ago in Claridge's, you would have gone to see an afternoon tea.

You would have seen the same people the men in the suits and ties, and everybody very smartly dressed and their dresses and everybody very formal. Now you have a very eclectic mix of young people, older people. Smart, formal, informal, smart, casual, et cetera. So that's what you see now today in luxury.

Luxury is less about the formality and what the traditional luxury was, it is now very diverse from a cultural perspective, from an age perspective, and it's very inclusive. Hospitality has to be inclusive, not exclusive. And I think that's one of the big changes I've seen in the luxury hotel space is the inclusivity versus that exclusivity.

James Cook: I love that. I love that. I love a place that feels welcoming, to everybody. Zach have the destinations changed over the years? I mean, or is it still just London, New York, those kinds of places.

Zach Demuth: I think the forever markets, as we call them, right. London, New York, Paris, Sydney, Tokyo have always been there and will continue to be there. Partly because of their gateway mentality. A lot of luxury hotels rely on international travel, whether it's Americans to Europe, Europeans to America, obviously the Asian traveler, which broadly has not recovered internationally, but we're seeing, green shoots emerging. Those travelers typically have to start their journey or have to at least connect in some way through the major gateway markets, London, New York, et cetera. So, I think those cities are poised to benefit and will continue to benefit very strongly. We have definitely seen emergence in newer markets, right?

And I think luxury again is well positioned because some of these areas are hard to get to. You think about the Maldives I think in many ways the Maldives was big probably 10, 15 years ago continues to grow. We see a lot of growth It's a really hard area to get to particularly from the us from much of Europe and even parts of Asia expensive to get to, and therefore in many ways really favors the luxury traveler.

I think we also see a pretty significant growth for, to Mark's point, not just that's exclusive luxury, but luxury in different concepts, ecotourism, as an example, growth massively in South America. You look at what's happening in Costa Rica the four 20 years ago, obviously a luxury brand, wasn't much additional growth.

And then over the last five or six years, we've seen six or seven new resorts develop. All in this sort of eco-tourism mentality, very community oriented, luxury focused in a sense, high, high touch environment, but again, inclusive in many senses. So I think again, luxury has the ability because of the guests that it's attracting in many ways to develop in areas where there might not be as much infrastructure or areas that might be harder to get to because there is still this desire from a luxury traveler to have truly authentic, truly unique experiences, which, of course, can be accomplished in a place like London or New York. But in many ways have a better ability to be accomplished in these semi remote or semi hard to get to destinations.

James Cook: Mark, are you sticking to the tried and true or have you thought about expanding into some new remote destinations for future locations?

Marc Socker: I think, you know, for the right opportunity, in the right market, we would absolutely look to invest ourselves or with third parties on the management agreements, et cetera. No, I think, urban gateway cities are always a bit more secure, a bit more stable, a bit more predictable for us.

And especially if I think about it from an investment perspective, resorts are a very different business. It's a very different business to operate. They're very different to run. one thing with Mayborn is we do not want to grow for growth sake, and I certainly don't want to be 50, 60, 70 hotels.

So, we're going to be very selective with our partners and our destinations. Never say never. Will we have some resorts potentially? But nothing,

James Cook: That makes sense. Yeah. The last thing you want to do is dilute your brand.

[00:15:58] squadcaster-3djb_1_03-22-2024_170230-2: A hundred percent, a hundred percent,

James Cook: Something that doesn't make sense. Well, that leads into my next topic is branding. Zach, I was reading your report, you said a hotel brand has never been more important. Why is that?

Zach Demuth: Yeah, I think very much for the reason Mark just said, right? in some ways you think about the very definition of luxury, at least the way we've been defining it, is Experiences either exclusive or inclusive, but truly authentic. And so, in some ways, that's a bit antithetical to having these brands that have a hundred or 200 hotels, right? Some ways, how can you have luxury and mass marketed luxury? Now, clearly it exists. And clearly there are some brands that are very successful at it. Ritz Carlton. Obviously, I'm a bit biased, but I truly think they're successful for seasons and others have been very successful. But there is a risk to Mark's point about growing just for growth’s sake, particularly in a luxury environment, you risk becoming too homogeneous.

You risk becoming too cookie cutter. And again, that in and of itself is antithetical to the entire luxury experience. So, I think when we look at the world of branding, there has been this explosion in hotel brands. Can't remember the number off my head, but I think there's roughly around 1400 global hotel brands, again, across all classes and luxury itself, there's around three to 400 of them, which is a pretty significant chunk. And so with that, when owners are looking at potentially putting a flag or putting a brand on their hotel, it's never been more important to choose the right brand, the right flag for their strategic growth, and also to remember that, again, I think Mark referenced this earlier, the Consumers want to travel to a place that they can have authentic experience that aligns with some part of their lifestyle.

We've seen fashion brands get into luxury Louis Vuitton opening in Paris later this year. We have the Porsche tower in Miami and many others. So that's an interesting avenue. And we've similarly seen hotels adopt other segments, other industries, again, retail and fashion. So, when you pick a brand, you're not just picking the brand for your hotel.

You're picking something that might extend into other facets of consumerism. So again, I think it's so important for owners to pick thoughtfully, strategically. And then as you think about growth, I think Mark alluded to this, have to be incredibly strategic and thoughtful because diluting your brand in a luxury space can have significant negative consequences.

James Cook: I want to quickly touch on the capital markets and on investment. What are transactions looking like right now? Is there a lot of demand for these properties from investment standpoint? And maybe Zach, I'll start with you.

Zach Demuth: Globally hotel liquidity, similar to most other commercial real estate assets was down rather significantly last year due to well documented capital market dislocation, namely high interest rates. If we look at the construction of the composition, I should say of hotel liquidity, it's about 51, 52 billion dollars global hotel liquidity last year. And nearly 20 percent of that came from luxury assets, which as a proportion is some of the highest, we've ever seen. As a dollar amount, obviously down, but again, as a proportion, quite high. Okay. And I think that's driven really by two things. First is this growth in luxury hotel performance. when performance is up, typically investors gravitate towards the space. I think secondly, you look at the yields that many luxury hotel assets are providing, they are not only higher than general interest rates, but also higher than they've been before. And again, obviously this is not ubiquitous. There are exceptions, but generally speaking, and a lot of that coming from luxury urban markets, which were hit very hard in the last two or three years and are now coming back driven by international travel, business travel, et cetera. And so, I think global investors are looking to the luxury space as a way to hedge against inflation. Again, average hotels set the rates every night, so you don't have to worry about long term leases. And then as well generate higher yields than before. I think what really indicates this and we're something we're really excited to see is all the new capital coming to hotels, specifically for luxury hotels.

You know, historically, luxury hotels were predominantly owned and acquired by high-net-worth individuals and family offices. And we've started to see more institutional capital come into the space, whether it's in the U. S. with public REITs. Whether it's globally with private equity, sovereign wealth funds are reemerging.

And again, it's not that these buyer types weren't there before, but they're coming in at higher rates, really looking at the luxury space as a way to sort of drive their overall portfolio, given the success the space has seen.

Marc Socker: And as I understand it, and Zach, you'll know better than me, I believe also that the majority or a very high percentage of the big global brands and the big global hotel groups pipeline is actually in the luxury space or certainly luxury and lifestyles. But I think something like 50 percent of their pipeline. Which is extraordinary if you think about what that would have been a few years back.

Zach Demuth: For sure. And that's a really interesting point, right? Cause globally we see, absent the middle East, construction is way down, right? New development has been way down with the exception of luxury. And I think a big reason for that is not only this growth, but the brands are putting their own dollars behind some of these new constructions, which is really rare, right?

Historically, the brands will offer incentives, but only for exceptional projects, or they put what we call key money or their own balance sheet to work. And they're starting to do the IHG with Six Senses, Marriott with Ritz Carlton St. Regis, Hilton, Conrad, right? We see a lot of this opportunity.

Marc Socker: Yeah, we get approached on a weekly basis about extraordinary opportunities. Now we pick and obviously, as I said before, we're not growing for growth’s sake. So, I think about whether it's for us to invest and manage or just manage the vast majority we don't see as being the quality that we require.

But it's certainly for the last 12 months in particular being incredible how many. opportunities and things that are out there to potentially turn into luxury hotels or to rebrand, et cetera. I think the cost of construction as well. It's so expensive these days that actually sometimes to actually buy an existing asset, if it's available, is very attractive.

If you think about from an investor perspective the hotel sector, as you said before, inflation hedge supply demand fundamentals, especially in urban cities are very interesting. Demand is growing at an incredible rate. And if you think about urban gateways, London, New York, Paris, Milan, especially the European cities, there's no space.

There's no ability to build new ones. So that, that's a, that's a challenge, but the underlying fundamentals in terms of demand are very attractive. If you think about where an investor who typically likes to invest in real estate, bricks and mortar, what other asset classes within real estate, can you really put your hat down and say, I'm pretty confident that supply demand fundamentals are going to Be attractive going forward.

There's very few. So, hotels are the one sector where I think most people can say, right, there's growth there.

And luxury notwithstanding all the geopolitical headwinds and the economic instability. The one thing that we all know, and Zach was mentioning before, the users of luxury hotels are growing, and their wealth is getting bigger. And there's more and more people with the ability to do it. And that doesn't look like it's going to fall anytime soon.

James Cook: I love the outlook, and I love the theme here. You know, folks are ready to spend money on experiences and really create new memories and that's great for your business. So, Mark and Zach, thank you so much for joining me today. This has been a really fascinating conversation.

Marc Socker: Thank you very much.

Zach Demuth: Thank you so much.

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This episode of trends and insights was produced by Bianca Montes.

Our theme music was written and performed by Joel Karachi.

Contact Zach Demuth

Global Head of Hotel Research

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