Spanish developer Rafael Serrano paid the British government £60 million ($97 million) for a 99-year leasehold to transform the landmark Admiralty Arch building into a 100-room, ultra-luxury hotel.
LONDON—A new, ultra-luxury hotel development on London’s Trafalgar Square announced in October was not enough to quell a rising tide of commentary suggesting the city is losing out to Paris in the race for affluent new tourist markets.
Of primary concern, critics say, is London’s lack of palatial-style hotels—the kind in which Paris is awash. But others are not so willing to give up historic landmarks in the name of hotel competition.
Spanish developer Rafael Serrano’s proposal in Trafalgar Square is a prime example. The new 100-room property will open in the landmark Admiralty Arch building, for which the developer paid the British government £60 million ($97 million) for a 99-year leasehold. Overlooking Whitehall and The Mall, there has still been no decision on the hotel’s opening date or branding.
The issue has been dividing London, between those who feel selling off public properties as hyper-elite hotels is unfair, and those who think the transformation of the historic yet dilapidated ceremonial gateway¬¬—built in 1912 as a tribute to Queen Victoria—will meet some of the unfilled demand for such hotels.
Despite reports that tout London’s “safe haven qualities and liquidity” and “appeal of an investment in sterling” as attracting southern European investors to the city’s property market, many hotel industry sources say they risk waiting in a long line if they are seeking an appropriate site for a deluxe hotel.
Asian brands such as Raffles Hotels & Resorts, Shangri-La Hotels and Resorts, and The Peninsula Hotels have chosen to bypass the British bottleneck for their European luxury debuts, overhauling stately historic buildings in Paris’ chic left bank arrondissement or neighborhoods instead.
Lack of land
Finding a suitable site in London is a major factor in the later opening of these brands in London, said Patrick Angwin, associate director of Horwath HTL London.
“I believe that all of them are very keen to establish a presence in London, along with countless other brands. But one of the biggest challenges in successful hotel development is finding and securing an appropriate site. Whilst there is a lot of hotel development in London, the majority of available sites are simply not suitable for the development of these luxury brands—and those that are, are usually fiercely fought over,” he said.
A good example of this, Angwin said, is the Shangri-La Hotel, at The Shard, which has been waiting in the wings patiently for about a decade for its 2013 launch in the recently completed The Shard London.
But even this ultra-luxury hotel stands in stark comparison to those being developed in Paris, he added.
In Paris, that market has been characterized by the so-called ‘palace’ hotels—the Four Seasons George V, Plaza Athénée, Hôtel de Crillon, The Ritz Paris and Le Meurice—which operate at a three-digit revenue-per-available-room premium over the next tier down of hotels, Angwin said.
“Some are operated by big international brands, (including Dorchester Collection’s Plaza Athénée and Le Meurice), but not all of them.
“In London, the ultra-luxury set is somewhat less demarcated. Certainly there are a few stalwarts—established London-specific hotels such as The Ritz London, Claridge’s, The Dorchester and The Savoy—but there are also many other global brands including Brown’s (Rocco Forte), the Mandarin Oriental (Hyde Park London) and The Stafford London (Kempinski).”
The ME London
Angwin said recent London openings at the luxury end of the market include the Corinthia Hotel London, the West End’s Café Royal and ME London (setback from the beginning until the end of December).
“Some of the most prominent forecast openings in the public domain include 10 Trinity Square (KOP properties), the Shangri-La, at The Shard and Four Season’s Heron Plaza (tipped for completion in 2015).
“Meanwhile, there have been a number of major high-end refurbishments including Fairmont-managed The Savoy and Four Seasons Park Lane,” he said.
Closing the gap
With the London Olympics out of the way, it seems the new race in London is to find the best luxury hotel sites and beat off the searing competition.
Paris might have gotten off the block first, but London is rapidly closing the gap—if not with palatial properties—and quelling the concerns of some critics.
Though he admits the competition to snap up new sites is tough, Matthew Dixon, GM of the prestigious Whitehall Place Corinthia Hotel London, snubs suggestions that London is lagging behind Paris in the deluxe hotel scene.
“The ultra-luxury hotel sector in London is buyout and competitive,” he said. “Developers and operators face the same difficulties of finding appropriate sites for new luxury developments. The winners are those that win the bids for specific sites and have the financing in place to develop. At the Corinthia, we beat off 29 other developers and all of the top luxury brands.”
Unlike Paris, where the exclusive hotel market has been satiated over the past three years of performance-enhanced developments, there is room for more high-end hotels in London.
London has 641 luxury rooms under construction, according to STR Global, sister company of HotelNewsNow.com. Through October year to date, occupancy for the segment averaged 78.1%, while average daily rate and RevPAR stood at £294.64 ($477.57) and £230 ($372.80), respectively.
Fabio Gallo, GM of the soon-to-open 5-star ME London, sees plenty of scope for more luxury hotels in landmark London locations. “The city is awash with interesting buildings, full of stories,” he said.
“Our hotel is on the site of the first home of the BBC Radio’s Marconi House on The Strand, as well as the historic Gaiety Theatre. Architectural firm Foster + Partners’ created a modern interpretation of this, using the same original Portland stone. Other recent projects of this nature include the reopening of West End’s Café Royal (an LWH property) as a luxury hotel, and the St Pancras Renaissance (the opening of the Marriott property in 2011 followed a decade-long restoration of the 1873 traveler’s hotel near St Pancras rail station).
Roland Fasel, GM of The Dorchester London and U.K. Regional Director for Dorchester Collection, also believes the luxury hotel market is far from satiated.
“Despite recent newcomers to the market, occupancy and rate at both our established and new properties remain aggressive, indicating there is plenty of appetite for growth.
Fasel agreed the question of site is a key critical one. “Luxury brands will look for the best locations and will wait to find them before opening.”