Affordable lifestyle brands have proliferated over the last several years, signaling a rising interest in this space among investors. A new study by JLL explores why.
According to JLL’s recently released Hotel Investment Outlook, over the past five years the “affordable lifestyle brand” sector more than doubled to 55,000 rooms. The largest growth posted was in the Americas, with total rooms increasing by a compounded annual growth rate (CAGR) of 40% since 2015.
These new brand entrants are capitalizing on the gap that exists in the region, as the Americas is traditionally known for its lack of affordable product with modern features and amenities. Europe, the Middle East and Africa posted 6% growth as this region already offers affordable lodging given its robust hostel market. Finally, the Asia/Pacific region posted a 15% rise in the segment and has the greatest number of affordable lifestyle properties in the pipeline. This points to the region’s untapped growth potential.
Why the recent upswing?
Affordable lifestyle brands have several key differentiators that are attractive to the current expectations of guests as well as hotels’ need to adapt to the increasing densification of cities. Common features include efficient, technology-enhanced room design as well as smaller rooms that range from 180 to 275 square feet. Contemporary lobbies with open space encourage socializing and offer a comfortable place to work. Additionally, food-and-beverage outlets onsite are focused on grab-and-go options with a particular emphasis on beverage sales.
All of these features cater to three significant developments that are transforming not only the hospitality business but also the entire real estate industry. First, major parent hotels are launching these new brands to better meet the taste of the millennial generation and corporate traveler. In an era of flexible space, shared offices and even co-living, consumers have grown accustomed to interactive spaces that reflect a technology-focused, designed aesthetic that is also affordable. These guests want to be able to work, play and mingle in one seamless experience. Lifestyle hotels can deliver that specific need without bursting the budget.
Secondly, hotels are adapting to the increasing densification of poly-centric cities and urban areas. In a more competitive environment where real estate is pricing at a premium, these brands can take advantage of smaller rooms and a condensed footprint by constructing sleek and highly efficient hotels within denser, well-trafficked areas. This ultimately drives profit per square foot.
Finally, hotel operators are diversifying their brands to compete with the alternative accommodation space. In an era when renting out one’s home and vacation rentals have disrupted the industry, hotels are beginning to take a page from their playbook by creating fun, hip and memorable experiences for their guests. Hotels provide not only a place to stay but also create seamless, entertaining experiences through technology and design that cater to the “Instagram generation.”
Why should investors care?
There are several reasons why this growing sector of the industry is attractive to investors. As discussed, smaller rooms in denser urban areas will allow for higher footfall and traffic to the property, which investors prefer. The smaller footprint can also translate into potentially shorter construction timelines, permitting the hotel to get online and operate faster than a more expansive property.
By focusing on smaller rooms, these hotels can provide more space for amenities and other ancillary features, such as open lobbies for lounging and working that will drive greater food and beverage spend. They can capture both guests of the hotel and those off the street looking to catch up with a friend or check emails as they drink and snack on appetizers.
Finally, affordable lifestyle brands have the dual capability of appealing to the business traveler and their needs as well as to the leisure traveler. Most brands have in fact seen equal demand from both groups. Given the blurring lines between work and life, this is not surprising. A guest may come into town for a few days of work and then take a couple days to explore the city. Providing an experience that can accommodate both of those necessities is crucial and situates the brand to play to several different groups.
A commitment from major players in the space
The influx of investor interest, the changing consumer landscape, and the recognition that there is a space in the sector for affordable lifestyle brands are driving major chains to branch out into this developing segment of the industry. Companies such as Marriott International, InterContinental Hotels Group and Hilton Worldwide have developed affordable brands such as Moxy, Avid and Tru. Budget friendly hotel chains are also jumping in with their own brands. For example, Best Western has introduced two affordable lifestyle offerings in the market: Vib and Glo.
This commitment from world leading brands to this space is a strong indication that it is here to stay and is not a passing fad. Guests are demanding affordable experiential offerings, and brands are adapting to meet this changing environment, providing opportunities for investors and operators who are willing to innovate and adapt.
Gilda Perez-Alvarado is the Chief Executive Officer, Americas and the Head of the Global Hotel Desk for JLL Hotels & Hospitality.
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