The total supply of independent hotel rooms in the U.S. has continued to decline, and while the rate at which independent hotels are closing is high, the closure rate continues to slow.
HENDERSONVILLE, Tennessee—In the United States, the hotel landscape has noticeably changed since 1990.
One key trend is that there seems to be fewer and fewer independent hotels.
If you were to look across the American hotel scene in 1990, you would find that nearly two-thirds of hotels were independently owned and operated. Today, independents account for less than 40% of all hotels. So, what is driving this shift?
To answer this question, consider a few interesting trends that help characterize the changing role of the independent hotel in the U.S.
Independent closure rate high, but slowing
The annual closure rate of independents has historically been higher than other hotel scales (chart 1). Since 1990, an average of 1.1% of independent supply has permanently closed annually. This is 60% higher than the average annual closure rate for all hotels (0.69%).
However, in recent years, this pace has slowed. Although we are still accounting for all permanent hotel closures that occurred in 2018, we are seeing that the average annual closure rate for independents from 2013 to 2017 (1% annually) is much lower than the average rate from 2008 to 2012 (1.4% annually). For other scale groups, the closure rates have increased slightly.
Independents showing their age
One factor that contributed to the higher rate of closures for independent properties is the age of the buildings. Hotels require regular maintenance to remain open and attract guests. The amount of upkeep required increases as buildings age, which drives up costs and can quickly eat into the profitability of small, independent operators.
Most recently, the average age of open independent hotels is 44 years, compared to 24 years for all other properties. For properties that have closed, we see a similar trend. In 2017, the average age of independent hotels which closed was 45 years, compared to 36 years for all others.
A higher risk of closure when disaster strikes
Bringing a property back to life after a natural disaster can be costly, especially for smaller, independent owners who often don’t have the same capacity to absorb such costs as larger owners.
The five-year period from 2003 to 2007 was especially tough on the Gulf and Atlantic coastal areas of the United States. During that time, more than three dozen hurricanes including Isabel, Katrina, Rita, Ivan and Frances wreaked havoc, claiming nearly 7,000 lives and causing more than $160 billion in damage—one of the costliest five-year periods for natural disasters in U.S. history.
Looking back, these storms had a huge impact on the supply of independent hotels that were in the storm’s path. Overall, nearly 1,000 independently owned and operated hotels in the Gulf and Atlantic coastal states permanently closed from 2003 to 2007. Chart 2 shows how the spike in independent hotel closures is closely aligned with the decline in the number of independent properties.
Independent declines rooted perception, not reality?
While the average annual closure rate of independents has historically been among the highest, closures are only a part of the story, but are not fully to blame for the decline in independent hotels. Perhaps the leading reason behind this is based more in perception than reality.
We are not only seeing fewer independent hotels due to an aging supply or natural disasters. However, the perception that there are fewer independent hotels is more rooted in the fact that there are more of every other hotel type, especially midscale and upscale, as opposed to a drop in independent inventory sizable enough to account for independent hotel’s share of hotel supply dropping from 65% to 40%. In short, the number of hotels in the U.S. has grown from 38,000 in 1990 to more than 56,000 in 2018 and independent hotels have simply failed to keep pace with the growth.
Midscale and upscale hotel supply has more than tripled
Where has all of this growth in U.S. hotel supply occurred over the past nearly three decades? The answer is in midscale and upscale hotels. The supply of midscale hotels has nearly quadrupled from 4,400 in 1990 to more than 16,000. In 1990, midscale chains comprised right at 12% of U.S. hotel supply. Since then, it has grown to account for nearly 30% of domestic hotels.
Upscale chains accounted for about 6% in 1990, while today, they account for more than 13%. Upscale supply has more than tripled with 2,500 properties in 1990 to more than 7,500 properties in 2018.
In short, while their presence has evolved, and even been shaken, over the years independent hotels continue to be an important fixture in the American hotel landscape.
Will Sanford is a Research Analyst at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.