Macron effect, infrastructure boost French performance
Macron effect, infrastructure boost French performance
26 MARCH 2018 8:44 AM

After suffering from the after-effects of terrorism, France and its hotels now are back, with positives including infrastructure initiatives, excitement around the 2024 Summer Olympics, investor confidence and the feel-good factor stemming from the 2017 election of President Emmanuel Macron.

BERLIN—Optimism surrounding France’s June 2017 election of President Emmanuel Macron is one factor hoteliers believe is boosting performance in the country.

But sources said the full force of the so-called “Macron effect” has yet to be seen.

France already is seeing renewed performance as tourism rebounds following the terrorism incidents of the past few years in Paris and Nice.

In its full-year 2017 earnings, France and Europe’s largest hotel company, AccorHotels, posted a combined average daily rate for France—approximately 152,000 rooms—and Switzerland—approximately 8,000 rooms—that was 7.4% higher for the fourth quarter of 2017 than it was for the same quarter in 2016. This followed five quarters of negative or stagnant ADR performance.

In a session titled “France: Is there a Macron effect on hospitality investment?” at the International Hotel Investment Forum in Berlin, Philippe Doizelet, managing partner at Horwath HTL, said the country has shown signs of recovery.

“France is back. Yes, that is a cliché, but the last cliché was a bad one, and this is good,” he said. “I anticipate there will be some Macron effect to anchor hotel investment because there is a tight link between confidence in the economy and the willingness to invest.”

In the short term, he predicts that revenue per available room in the country will average “around 4.5%” and GDP will grow about 0.5%.

“In the long term, for years France has been behind the United Kingdom in the cycle, perhaps two years behind,” Doizelet said. “Now France is moving up from the bottom where the increase in performance is most acute and rapid.”

Christian Karaoglanian, advisor to AccorHotels chairman and CEO Sébastien Bazin, said the firm saw an 8.5% full-year RevPAR increase in 2017 and 10% growth for the second half of the year.

“The Macron effect has not yet kicked in, but it will come as Macron is active and fast,” he said.

According to data from STR, the parent company of Hotel News Now, hotel occupancy in Paris increased 5.5% to 73.6% for full-year 2017, while average daily rate grew 2.6% to €233.55 ($286.30). As a result, full-year 2017 RevPAR in the city increased 8.2% to €171.87 ($210.69).

Bordeaux saw positive occupancy (+5.7% to 67.8%) but an 11.7% decline in ADR to €89.48 ($109.96) and a 6.7% drop in RevPAR to €60.67 ($74.37). That mirrors performance figures for all of France, which saw occupancy increase 5% to 66.6%, ADR decrease 10.8% to €118.23 ($144.93) and RevPAR drop 6.3% to €78.69 ($96.46).

More than Macron
Doizelet said the reasons behind France’s rise are varied and include:

  • benefits from Brexit, with some firms worried about remaining in the U.K., or already having acted upon those worries;
  • the natural oscillation and progression of the real-estate cycle;
  • excitement regarding the 2024 Summer Olympics that will be held in the north of Paris, which will bring infrastructure changes, including a second ring road and new rail lines to more-distant suburbs;
  • infrastructure projects in the French regions;
  • laws that have increased flexibility in employment and changed tax policy; and
  • 2% growth in domestic French tourism, coupled with substantial global growth in tourism.

Karaoglanian is bullish about the French regions, too.

“I have never seen so much development as (there is) now in the provincial cities,” he said. “And the land costs there are cheap.”

He added AccorHotels’ numbers for the first two months of 2018 are encouraging.

“We’re not hitting (the crest) of the wave, but we are in the wave,” he said.

Lender participation also is increasing in the country as a result of growing confidence and other factors, Karaoglanian said.

For example, he said, independent assets in secondary cities are being repositioned, and the pipeline in the last 10 years has been low.

The regions are still playing catch-up, which will be helped by new infrastructure projects and improvements in high-speed trains, he said.

“Bordeaux was sleeping. The same can be said of Montpellier, Rennes and other cities,” Karaoglanian said.

Another potential demand driver is a €2-billion ($2.46 billion) investment in Disneyland Paris, announced by the Walt Disney Company in February.

Demand for discipline
Doizelet said France has 650,000 hotel rooms in a landscape where 48% of hotels are branded, with 88% of that number being under the control of domestic brands.*

He added France has one of the highest brand penetrations in Europe.

“(It’s) important to have quality teams to successfully execute projects when land is scarce,” he said.

Karaoglanian said the landscape in France is very similar to that of the U.S. 30 years ago, when franchises started to be such a success.

“AccorHotels opens 40 hotels a year in France, and 35 of those are franchises,” he said. “Investors more and more are looking at selling franchises in provincial France and buying in Paris, although part of this strategy was to avoid tax. Macron has ended that, so there might be a reduction in such appetite.”

Karaoglanian added in France leases usually run for 12 years, not the 20-year leases seen in Germany nor the 25-year leases seen in the U.K.

In terms of financing, loan-to-value ratios are comparable to other countries (75% to 80%), and on average margin growth is approximately 150 basis points, which is lower than that of the U.S., Doizelet said.

*Correction, 26 March 2018: This story has been updated to remove an incorrect company affiliation and correct the percentage of branded hotels in France.

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