Drivers behind luxury and lifestyle hotel brands are ‘weakening’, says investor

The director of a European private equity firm has suggested the drivers behind the growth of luxury and lifestyle hotel brands are “weakening”.

Francesco Orofino, director of Deutsche Finance International, told the Annual Hospitality Conference (AHC) that while luxury and lifestyle hotels have been a long been popular with investors, there wasn’t “a lot of gas” remaining to ensure consistent returns.

“The drivers causing that [luxury and lifestyle] drive are weakening. In lifestyle or luxury, you need to develop more high risk activities, which we feel are challenging, so we are pivoting to more midscale and budget, as the product tends to be more adaptable,” he said.

He said these segments of the market were “more scalable” and better suited to office conversions.

A number of large hotel groups have sought to broaden their lifestyle offering through brand acquisitions this year.

In May, Hilton announced it would add the NoMad and Graduate Hotels brands to its portfolio, while Hyatt completed its acquisition of Standard International this week.

Ina Plunien, vice-president asset management & acquisition at Cedar Capital Partners, said the London-based property investment firm was still focusing on full-service lifestyle and luxury hotels due to the “immense resilience” of the luxury sector in particular.

The luxury segment has boomed in recent months, with a flurry of new openings in London, ranging from Mandarin Oriental Mayfair to the Emory, Raffles London at the OWO and the Peninsula last year.

Plunien said ESG has become a key consideration for investors who may look to sell their hotel assets, especially as institutional lenders are becoming “more heavily regulated on the ESG front”.

She added: “So for us, creating future product for them is really important. It’s always a positive consideration for us on the return and productivity perspective, P&L, electricity and water consumption, which all have an impact on cashflow."

Image: Simon Callaghan Photography