Why develop a franchised boutique hotel?
Why develop a franchised boutique hotel?
22 MAY 2019 12:21 PM

Lifestyle boutique and soft-branded hotels continue to exhibit strong performance, which piques the interest of brands, developers and consumers.

ATLANTA—Strong operating performance in an underserved niche has made boutique hotels one of the fastest-growing segments in the U.S.

This hotel type, which includes independent and franchised product, generated $20 billion in revenue in 2018. Contributing 71% of this revenue, franchised boutique hotels are those operating in partnership with a national chain and are segmented into lifestyle boutique and soft-brand collections. More than 35 franchised boutique brands are currently in some form of development in the U.S. Not only have the brands and developers noticed opportunity, the promise of a unique overnight stay has gained the attention of the travel guest. Demand has increased for this product at record levels and many markets remain underserved.

Lifestyle boutique hotels are nationally franchised and design-centric properties with a limited food-and-beverage component. These hotels are similar or prescriptive in every market. Typically straightforward to develop and operate, supply for these types of hotels increased 13% from 2017 to 2018 to more than 72,000 rooms in the U.S. Brands adding rooms in 2018 include AC Hotels by Marriott, Canopy by Hilton, Even, Glo, Hotel Indigo, Hyatt Centric, Kimpton, Moxy, Tryp by Wyndham and Vib.

Soft brands are also nationally franchised and design-centric; however, these properties are unique from market to market with a storyline threading throughout, incorporating the hotel name and location. Leading the boutique hotel segment in supply growth, soft-brand rooms increased 32% in 2018 compared to 2017. These types of hotels are largely opened as conversions, although new-build development is an option. In 2018, there were almost 58,000 soft-brand rooms available, including new openings for Ascend Collection, Autograph Collection, Tapestry Collection by Hilton, Curio Collection by Hilton, The Luxury Collection, Destination Hotels, Unbound Collection by Hyatt, Tribute Portfolio and Trademark Collection by Wyndham.

Measurement of a highly representative sample of upper-upscale and luxury class lifestyle boutique and soft-brand hotels indicate impressive growth occurred in 2018. Hotels in the sample are in primary and secondary markets and represent more than 36,000 hotel rooms. Lifestyle boutique room supply increased 11.4% and demand grew 10.3% in 2018 compared to 2017. Soft-brand collections increased supply 21% and demand for these hotels increased 19% in 2018. Both supply and demand have grown for these boutique segments at a much faster pace than the upper-upscale and upscale classes.

While occupancies for the franchised boutique segment are close to that of U.S. upscale and upper upscale, average daily rate and thus revenue per available room far exceed U.S. comparable classes.

A heightened experience in a true boutique hotel focuses on intent to connect with the local area and intrigues through design and unique amenities. Most hotel companies are well aware of this trend exhibited through continued announcements of upcoming boutique brands, which provides developers an opportunity to take advantage of markets underserved with this product. Franchised boutique hotels represent only 2.5% of all U.S. hotel supply. Some primary and secondary markets have strong representation of this product such as New York; Miami; Portland, Oregon; and Birmingham, Alabama. However, several markets are underserved with franchised boutique hotels including Houston; Detroit; Richmond, Virginia; and Memphis, Tennessee.

With solid occupancies approaching capacity, continued increases in demand and substantial average daily rates, development of the lifestyle boutique and soft-brand hotel product is expected to continue outpacing that of the traditional hotel type. As travelers experience the difference, it is likely they will discern in favor of the boutique hotel product for both leisure and corporate travel. A win-win for the consumer, the franchised boutique hotel segment is expected to continue strong performance, increasingly gaining a larger share of the overall hotel market.

Kim Bardoul is partner with The Highland Group and author of the annual Boutique Hotel Report. Her experience includes feasibility studies and market analysis for all types of proposed and existing hotels, due diligence for acquisitions, impact studies for several major franchise companies and financial analysis. She specializes in the boutique hotel product.

The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.

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