A wealth of knowledge

Despite economic shocks, geopolitical instability, market volatility and the tail end of a pandemic, the world continues to get richer. Although 2022 saw the first fall in net global household wealth since the 2008 global financial crisis, global wealth could reach $629trn by 2027.

This is according to the Global Wealth Report – an estimate of the wealth holdings of 5.4 billion adults across 200 markets – put together by Credit Suisse and UBS. The projection is for a rise of 38% over five years, which will create many more high-net-worth individuals (HNWIs) and serve as a major shot in the arm for certain industries, notably the luxury end of the hospitality sector.

“The world has experienced a surge in new wealth creation post-Covid, which is based on the economic turnaround and other macroeconomic factors,” says Jan Hazelton, vice-president for global development at destination resort and ultra-luxury hotel operator Kerzner. “Demand for luxury and experiential travel has increased, and our hotels have benefited from the uplift in occupancy and average rate over the past couple of years.”

The positives for Kerzner derive from its focus on positioning itself to cater for luxury travellers seeking larger spaces, increased privacy, and authentic experiences. InterContinental (IHG) has seen similar trends among guests who increasingly want not only accommodation but immersive experiences that cater to their desire for knowledge and cultural richness.

“When developing our brand portfolio, consumer and investor demand plays an important part and tells us a lot about the way expectations are evolving,” says Willemijn Geels, IHG’s vice-zzpresident Development Europe. “Up to the end of September 2023, luxury and lifestyle brands showcased 40% of all signings in Europe, Middle East, Africa and Asia.”

Know your customer

The global population of HNWIs is not only growing in, but also becoming more diverse. The range of experiences and destinations they seek continues to evolve, though the traditional luxury experience in well-established destinations remains as attractive as ever. In getting to understand their customers’ needs, luxury brands must take a balanced approach to existing assets and new opportunities.

“Post-Covid, it is fairly clear that leisure-driven hotels and the resort segment had the lion’s share in the guests’ hearts and wallets,” observes Francesco Cefalu, chief digital officer at Mandarin Oriental. “I believe it is a combination of realising the value of a scarce resource such as time – and the desire to make the most out of it – and a general trend towards valuing luxury experiences even more than goods.”

Cefalu’s current development strategy is twofold. The first strand is to enhance luxury offerings and experiences across existing properties, ensuring they align with the expectations of increasingly affluent guests.

“This involves investing in state-of-the-art amenities, personalised services and unique, culturally relevant experiences that resonate with the elevated preferences of HNW guests,” he remarks. “Secondly, given the concentrated wealth among specific demographics, we are actively exploring strategic expansion into key markets. This includes exploring regions that experience economic growth in the luxury segment and emerging markets.”

The overall goal, echoed by other operators, is to establish a presence in key destinations that resonate with affluent guests while also aiming to identify those destinations that could come to promience in the future early. At IHG, the approach is to have a luxury offering to suit everyone. InterContinental Hotels & Resorts is thriving as a key pillar of IHG’s global portfolio, the Regent and Kimpton brands are making their debuts and Hotel Indigo is expanding rapidly.

Regent has recently added iconic properties like the Carlton Cannes, and Kimpton’s impressive pipeline, which includes a 155-key new build property in Frankfurt as part of one of Europe’s largest inner-city developments, is consistently popular with guests. The luxury and lifestyle conversion brand Vignette Collection also has 25 open and pipeline properties worldwide, among the recent additions being Europe’s first Vignette Collection property, Casa da Companhia in Porto.

“What sets our approach apart is the strength and breadth of our global enterprise,” says Geels. “While we engage in selective development, our owners benefit from the vast resources, market intelligence, and operational expertise that come with being part of a global hospitality leader. This dual strategy ensures that our luxury brands not only thrive in exclusive locations but also benefit from the comprehensive support network provided by IHG’s global presence.”

Balancing exclusivity with ROI

As Geels points out, portfolio expansion in the luxury market is happening in all regions of the world: the key to finding developments that provide a return on investment is less about the potential of a particular country or destination, and more about the unique qualities a particular development can provide.

“HNWI preferences are constantly changing,” remarks Hazelton. “In recent years, there has been a trend towards experiential travel. They are looking for experiences that are authentic, immersive and unforgettable. In addition to experiential travel, there is also a trend towards wellness and sustainability, as they are increasingly interested in healthy and ecoconscious lifestyles and are looking for brands that share the same ethos and mindset.”

Kerzner has experience in developing, investing and building resorts in some of the world’s most remote, pristine unlocked destinations as well as the most coveted urban addresses. Its One&Only, Atlantis and more recent new brands SIRO and Rare Finds exemplify this approach.

“Our resorts are located in extraordinary nature, alpine, beach and urban destinations,” adds Hazelton. “Each property offers a curated selection of exceptional, once-in-a-lifetime experiences that celebrate the local culture, landscapes and communities in which they are located. Across each of our differentiated brands and distinctive destinations, we strive to offer guests a completely unique experience with each stay.”

In terms of return on investment (ROI), the sheer variety of opportunities for development – in terms of both location and experience – could make it hard to predict. Fundamentally, there is no set recipe for ensuring a healthy ROI, so investment decisions essentially come down to knowing the potential of a property or destination and, crucially, how that fits with the needs of specific groups within the HNWI segment.

“The ROI of a hotel investment depends on many factors that can vary widely,” Hazelton explains. “The most important are cost of the product and profitability of the operations. The cost of developing a hotel varies to a degree depending on the region, the product and the design, while profitability in operations is affected by numerous variables, some that are out of our control, including effects from the local or global economy.”

Kerzner’s approach is to focus on providing a strong return to owners and investors without favouring a specific region or segment.

“For most of our customer base, geography isn’t a limiting factor and they will travel where they want to go,” Hazelton explains. “Whenever we consider a new property, we consistently rely on the fundamental principle that forms the core of our beliefs – extraordinary. This principle guides all our new openings.”

Beyond the wealth curve

Wealth is certainly the driver of the luxury hotel sector, but it is not the only factor that fuels the potential of that segment. The development of properties and services in the luxury segment is informed by many factors, but chief among them is the understanding of how preferences are changing with different demographics.

“Considerations include evolving consumer preferences, strategic location choices, technology, adherence to cultural and design trends, a commitment to sustainability, awareness of the competitive landscapes and responsiveness to global events,” notes Cefalu. “These elements collectively contribute to the distinctiveness and success of luxury hotel properties and services in a highly competitive market.”

Increasingly, the implications of an investment needs to be assessed in more than purely dollar terms, as travellers – including those in the HNWI segment – are aware that their activities have an impact on the planet.

“A commitment to doing business responsibly is a cornerstone of our luxury investment strategy – going beyond the traditional bottom line, considering the impact of our operations on people, the planet, and the communities in which we operate,” says Geels. “This includes integrating sustainability into every aspect of hotel operations.”

“This responsible approach not only aligns with the expectations of today’s socially conscious investors but also enhances the long-term sustainability of our luxury hotel portfolio,” she adds.

Those brands that will not only succeed in the luxury segment but lead the way in its development will be those that are keenly aware of changing consumer preferences – from personalised experiences to wellness and sustainability – as well as how to integrate technology to enhance the guest experience, and how to unlock the unique characteristics of a property or a destination.

As global wealth grows, opportunities abound in the luxury hotel market, but it is not enough to ride the rising tide of the world’s HNWI population. It takes a keen sense of what customers want to make a success of any new investment.