12 Cities – Visitor Cities

12 Cities
 
The Visitor City

27 October 2016, by Yolande Barnes

The effect of international visitors on our 12 global cities, in terms of real estate investment and hospitality industries

 

 

 
The Visitor City

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The global cities that we feature are not necessarily the biggest in the world, nor are they the biggest city economies, nor the most powerful cities on the planet (although some are all of these). But they are some of the more famous and high-profile cities within their global regions. High-profile cities attract visitors.This has a knock-on effect by attracting investment as well, including real estate investment. They are high-profile cities able to tell some compelling stories for those trying to read the runes of the global real estate markets.

We have already taken a close look at city populations and densities. The rate of growth in these populations and the amount of land and buildings in a city determine future trends in real estate markets. A big, growing population in a small space will create demand pressures resulting in rent rises, while a shrinking population and large land supply create an entirely different real estate market.

But in all the global cities, there is a significant but uncounted population which rarely features in discussions of land use. It tends to be sidelined in planning discussions which focused on housing and workspace needs. There are around 901 million visitors a year, domestic and overseas across our 12 cities. They spend a total of 1.05 billion nights in varying types of guest accommodation, mainly hotels.

This means that around 2.9 million people every day are competing for accommodation with local residents, creating demand for what we call a ‘Visitor City’. On average, 3% is added to the population of cities by visitors every night. The largest overnight visitor populations are found in New York (0.57 million) and London (0.42 million).

FIGURE 1

International visitors

 
Figure 1

* Measures GaWC Global connectedness; Kearney Performance & Potential; Mori Power; EIU Global Competitiveness

Source: MasterCard, Savills World Research

THE SIZE OF THE VISITOR CITY

Visitors create demand for land in the same way as the residents and workers do. This is a force to be reckoned with, particularly in central areas. Hospitality space has to be provided at a higher rate per person than residential accommodation. Occupancy rates fluctuate over the year and hotels need to house visitors at peak periods.

Taking occupancy rates into account, we estimate that our cities need to house visitors totalling over 3.5 million. In some cities, notably Paris and Dubai, visitors swell the population by over 10%, creating demand for guest accommodation. It is also notable that the biggest visitor cities are also the most expensive for living and workspace. All this demand puts pressure on scarce land supply (see fig. 2, below).

FIGURE 2

The size of the visitor city

 
Figure 2

Source: Savills World Research

CITY QUALITY

World cities are not only great places to live in, work in, do business in and play in, they are also great places to visit. Premier world cities score well in Savills World City Ranking, not only on economics but also on culture, education, quality of life, safety, rule of law and a whole host of attractions. This draws people from all over the world to live, work and play (see fig. 1 above).

FIGURE 3

Old cosmopolitan cities

 
Figure 3

World cities have been welcoming and accommodating visitors for centuries. Nine of our 12 cities are historic trading ports, so have seen a wide range of nationalities come and go, and their global standing is very well established and long-lived.

All 12 have been settled for a very long time. Even the youngest, Dubai, was a (small) urban area nearly 200 years ago. The age of these cities can be a very important visitor attraction. Their historical and archaeological artefacts and urban character, in those places that have been preserved, are a significant tourist draw.


 

 

 

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INTERNATIONAL VISITORS

The most globalised cities have the most international overnight visitors, particularly business visitors. These visitors can have a big impact on a city’s economy because they tend to stay longer and spend more than domestic visitors. Across the 12 cities, international overnight visitors spend a total of US$132.6 billion a year when they visit, 30% of it on accommodation. In this way, city visitors are participating in the real estate markets of cities every time they pay their hotel bill. This is also true of retail and food and beverage spend, which helps create demand for space and to pay the rent on these premises. They also support industries outside of the hospitality sector, such as airports.

London has the highest number of international overnight visitors, followed by Paris. The highest spending visitors by far are Dubai’s who spend nearly twice the average of our 12 cities. The next most lucrative international visitor market is Sydney where visitors also stay longer. New York, Tokyo and Singapore are the only other cities where international visitors spend more than US$1,000 per head. Moscow and Rio have the fewest visitors and the lowest average spend of our cities.

DOMESTIC VISITORS

Not all visitors to world cities come from overseas. In most, especially those with vast hinterlands such as USA, China and Russia, more visitors come from the home country. A large proportion of these are not overnight visitors, so we have measured or estimated their numbers but left them out of the ‘Visitor City’. Native overnight visitors stay for shorter periods than overseas ones but still contribute to demand for bed spaces, so they have been included in our estimates of the size of the Visitor City.

Both types of visitor, day trippers and overnighters create demand for other types of real estate. Retail spend, food & beverage and leisure attractions all involve real estate of various types.

London, with a relatively small UK hinterland, has the highest number of overseas overnight visitors (20 million) but fewer domestic visitors (13 million). Paris, with the second highest number of international visitors (18m) has a slightly bigger French population to draw from but sees a similar proportion (48%) of domestic visitors to London (40%). Singapore, being a city state, can have no domestic visitors as they are all already resident. Dubai records no visitors from within its own emirate (see fig.4, below).

FIGURE 4

Which visitor cities are the most global?

 
Figure 4

Source: MasterCard, Savills World Research

THE HOSPITALITY REAL ESTATE EFFECT

Every year, US$36.75 billion of revenue flows into the accommodation sector of just nine cities from international visitors alone. The biggest recipients of this revenue is Dubai, followed by London, Paris and New York. These fundamentals point to where the healthiest revenue levels and growth might be found in cities where supply is limited (see fig. 5 below).

FIGURE 5

The hospitality real estate effect

 
Figure 5

Source: MasterCard, Savills World Research

THE AIRBNB EFFECT

In many world cities, visitors are also starting to compete more directly in the residential market. As householders open up their homes for guests using apps like Airbnb, they are increasingly competing with hotel operators and, when they are achieving above-residential-market rents for the same space they can out-compete ordinary residential household in the housing market.

This is starting to be recognised as a housing supply issue, especially in low supply residential markets and is being increasingly scrutinised and regulated in many of them. This shows the way that different uses compete for space in the city and how visitor accommodation is part of the challenge of housing the city.

THE RETAIL & F&B EFFECT

It is not just the market for hotels and hotel land upon which international visitors have an impact. Their retail spend and spending on food and beverage adds significantly to revenue in those sectors too. Across the nine cities where data is available, annual F&B spend by international visitors totals at least US$21 billion a year and shopping accounts for US$38 billion. Restaurant, bar, café and shop rents, especially in tourist districts, will be significantly impacted by these revenue inflows (see fig. 6 below).

FIGURE 6

International overnight visitor spend

 
Figure 6

Source: MasterCard, Savills World Research

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Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

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