Boutique, lifestyle and soft-brand hotels have reported high occupancy, revenue growth and profit margins over the last few years. Research shows there is plenty of room for the party to continue.
ATLANTA—With all the fanfare surrounding boutique, lifestyle and soft-brand hotels over the last few years, a casual observer might conclude these hotels are everywhere and well into their product development cycle.
The supply of these rooms has increased at double-digit annual rates over the last five years, and in 2015 they generated room revenues of $13.7 billion. However, their distribution is highly skewed and many markets are greatly underrepresented or have no product at all.
Using data from STR, parent company of Hotel News Now, the Highland Group evaluated the distribution of boutique, lifestyle and soft-brand segments by size of MSA. Those with more than 40,000 hotel rooms, with between 20,000 and 40,000 rooms and with less than 20,000 rooms.
We calculated the ratio of boutique, lifestyle and soft-brand collection rooms within each MSA group. We used these ratios to develop a distribution index. For example, boutique hotel rooms account for 2.6% of total hotel rooms in the MSAs with more than 40,000 rooms. In the San Francisco-Oakland-Hayward MSA, there are 5,596 boutique hotel rooms, which is 7.5% of total room supply. Accordingly, the boutique distribution index for San Francisco-Oakland-Hayward is (7.5%/ 2.6%) = 288%. The distribution index shows which comparable MSAs have proportionately more rooms in these segments and which might be most under-supplied.
The table below shows the three MSAs with the highest boutique distribution index and the three with the lowest.
The distribution of lifestyle hotel rooms in medium-sized markets is not as concentrated as the boutique segment, but 11 MSAs are below 100% with three of these reporting no lifestyle hotel representation. The table below shows the three MSAs with the highest lifestyle distribution index and, excluding markets with no lifestyle product, the three MSAs with the lowest index.
The disparity in boutique, lifestyle and soft-brand rooms in markets with less than 20,000 total rooms is wider than in larger MSAs. Many smaller hotel markets have no representation, while in others the concentration is extraordinarily high. In Santa Rosa and Portland, Maine, boutique rooms account for 7.6% and 5% of total room supply, respectively. Thirteen more MSAs have a distribution index greater than 100%, but 19 MSAs have only a single boutique hotel or none whatsoever.
Boutique, lifestyle and soft-brand hotels have reported some of the highest occupancy, revenue growth and profit margins of any segment of the hotel industry over the last few years, and there is plenty of room for the party to continue.
Mark Skinner is a partner with The Highland Group. He can be reached at firstname.lastname@example.org.
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