The world’s hottest new spot for luxury-hotel openings? It’s not a far-flung island, Saudi Arabia, or wherever the latest incentives lure operators (see also: Saudi Arabia). It’s London.
The British capital’s roster of soon-to-open spots is impressive. There’s a new Rosewood, housed in the Saarinen-designed former American Embassy, on its way. A vast Six Senses will open in the repurposed complex that is the erstwhile Whiteley’s department store. Meanwhile, an Auberge-operated site in the Mayfair building will fill the onetime home to the In & Out Club. They’ll join other recent arrivals, whether the Peninsula, Mandarin Oriental’s second site in London, the Emory and Best of the Best winners Raffles and the Broadwick in Soho.
There’s been such a flurry of five-star arrivals, the biggest for a decade or more, that estimates are that the total number of luxury hotel rooms on offer as a result will rise to almost 20,000—or around 4 percent near-overnight.
“It’s impressive and unusual in an established global market like this,” says Christina Jelski, who covers hotels for industry bible Travel Weekly. “Luxury has been expanding, but the cadence and pace of this is definitely an anomaly. And it’s a who’s who of five-star luxury, too.”
So what’s going on? Why is a mature market like London, already an ultra-high-net-worth hub, seeing a glut of these arrivals in short succession? It might seem surprising, but there was a clear, even desperate, need for more upscale crashpads.
“For years, London was underserved by the number of luxury hotel rooms versus demand. The very best hotels have been sold out very, very quickly,” says Winston Chesterfield, who tracks the luxury sector via his company, Barton Consulting.
Many name-brand hotels, like the Connaught, have a surprisingly small number of rooms (in that case, just 121), which has often frustrated last-minute, deep-pocketed travellers. Among them, one key demographic more than any other: wealthy, Middle Eastern families keen to decamp to London to escape the scorching heat back home. They often spend six months, starting each April, treating a five-star hotel as their temporary home.
“London is the No. 1 summer destination they use as a base, where they’ll most likely take up entire floors of a hotel and only ever five-star,” Chesterfield continues. “And these people say the longer-standing hotels get sold out completely. So, the pithy response to what’s going on? The number of rooms, in really top hotels, has always been relatively small.”
Tightness in supply, then, is one pull factor, but Chesterfield points out there’s another compelling element: real estate. London has the fifth largest cluster of UHNW residents in the world, but ranked second, only after New York, for those individuals owning homes in 2023. If you’re rich, and globetrotting, you’re likely to own (or want to buy) a pied-à-terre there—and the hotel brands will be happy to provide it. Most of the new openings, then, are both hotel and residences combined, meaning the former acts as much as a marketing ploy as a moneymaker.
“The family behind Peninsula wanted to make money in the London property market, and investors in the real estate were very happy to finance that hotel,” Chesterfield says.
The Hindujas, one of Britain’s wealthiest clans, are the owners of the historic building in which the Raffles property’s housed; half or so is allocated to the hotel, while the rest was offered as 85 apartments (with the likes of Michael Bloomberg and Goldman Sachs exec Todd Leland reportedly among the buyers). You can understand the strategy by pulling out the British version of Monopoly and looking at the priciest squares to land on: Park Lane and Mayfair.
“The dark-blue colours? That’s where everyone coming to London thinks they have to buy,” says Chesterfield.
Helen Brocklebank, who runs Walpole, the trade association that represents Britain’s luxury sector, adds that “branded residences sell very quickly and are in short supply. I think there might be one left at the Peninsula.”
For hotel brands, there are pragmatic reasons to target London as well. Construction cost inflation, which ticked up reliably around 5 percent each year from 2014 to 2019, has surged since the pandemic, with rises of 8 percent in 2022 and 6 percent in 2023. Mature markets like London, then, are ideal refuges, as almost every central spot will be repurposing a building, whether a department store (Six Senses), private members’ club (Auberge), or embassy (Rosewood). And a magnificent hotel in London also has a halo effect on the brand which operates it.
“It can make sense for the trickle-down effect to the rest of the portfolio from this crown jewel,” said Travel Weekly’s Jelski.
Despite the inventory onslaught, hoteliers expect to make money. Rates for five-star hotels around the world have soared since the pandemic. In London, per industry tracker CoStar, the nightly rate for a luxury class hotel in 2019 was £349.63; five years later, it had climbed to £470.97—a rise of more than a third. Compare that to the London market as a whole, where the average rate went up from £153.95 to £194.86, a rise of around a quarter.
Still, there are cautionary notes. Travel Master Jonathan Alder of Jonathan’s Travels says his clients aren’t planning London visits with as much frequency or enthusiasm as they once might have done.
“We’ve seen a massive slowdown in the desire for the U.K. It used to be much more, but right now the top three are Italy, France, and Switzerland,” he says.
“We’re seeing a shortening of length of time spent in London,” agrees Stacy Fischer, another Travel Master who runs the namesake firm. “It’s typically part of a larger European escape, and the U.K. is drawing people out of London to places like the Cotswolds.”
It’s worth noting, of course, that the previous British government rescinded the perk of tax-free shopping for tourists, calling a tax break for foreigners on locals’ dime—without recognizing how much of the British economy was supported by those spree-prone visitors (as we’ve already explored) Those are the very same people all five-star hotels are chasing, but now they’re just as likely to go to Paris—and shop tax-free—as that traditional jaunt to London.
And yet, industry observers seem bullish on the prospects for London hospitality. Real estate firm JLL’s most recent research paper on hotels predicted that the opening of city centre hotels, especially in London, New York, and Tokyo, will increase in the near term, meaning that the five star landscape is far from oversaturated.
“It’s a place for business and leisure,” says Walpole’s Brocklebank. “There aren’t other cities quite like that, and the blend is what really makes things work. These are long-term investments, and nobody is really expecting ROI in the next year or so.”
Featured image (top): Photo by Durston Saylor
