NATIONAL REPORT—Once upon a time, the boutique hotel segment consisted of small, independent properties that attracted guests by offering something more than what they got from branded hotels. As Kirk Pederson, president of management company Sightline Hospitality, put it, each hotel had “character, personality, a real story and a reason for going above and beyond the classic need for a hotel room.”
Over the past decade, brand companies created their own group of boutique hotels through their soft brands. Due to their nature, the exact number of boutique and independent hotels can be hard to figure out, but next year, it will be done, said Frances Kiradjian, founder/CEO of the Boutique & Lifestyle Leaders Association (BLLA).
“It took us 10 years to create guidelines for what makes a hotel boutique, along with expanding our sector by including different categories, particularly since boutique has become a very broad term in hospitality,” she said.
CBRE Hotels, in conjunction with BLLA, produces the quarterly report “Trends and Expectations for Boutique and Lifestyle Hotels.” It breaks down the boutique segment into six categories—legacy brands/upper-priced; legacy brands/lower-priced/soft brands; referral groups/independents; boutique-lifestyle brands/luxury; and boutique-lifestyle brands/upper-upscale.
Focusing on the category of referral groups and independents, according to the report, RevPAR for year-to-date (YTD) 2019 through the second quarter was $180.40, a 1.1% increase over the figure of the same period last year ($178.52). ADR through Q2 was $252.03, a rise of just 0.8% from $250 for 2018 YTD through Q2. Occupancy has remained essentially flat when comparing the same time periods—71.6% in 2019 vs. 71.4% in 2018.
Brandon J. Feighner, senior director, Western division, CBRE Hotels Advisory, noted that independent boutique hotels have performed well when compared to the upper-upscale category.
“Similar to the larger U.S. hotel industry, independent boutique hotels have exhibited strong performance in recent years,” he said. “Specifically, this subset of boutique hotels has performed at roughly a 33% RevPAR premium compared to upper-upscale hotels throughout the nation. This premium has remained consistent over the 2014-2018 period.”
Kiradjian pointed out that discussions she has had with owners and operators of boutique hotels have “indicated profitability based on expansion and optimism of results.”
She continued, “Many claim that while they hear from their brand counterparts that the big guys are squeezing their profits to single digits, being part of a small brand or simply being independent affords them the greatest opportunity to drive much higher profits and gain momentum along the way.”
Pederson’s Sightline Hospitality, which was formed from the merger of Kokua Hospitality and Filament Hospitality, has seen mixed growth with the independent and boutique properties it manages.
“We have hotels in strong markets with growing demographics in these segments that are up well over double-digits, and other hotels that haven’t seen as much growth,” he said. “I definitely think the consumer is still gravitating to this segment, but now we’re seeing a little bit less growth as everyone jumps onto this bandwagon.”
Interstate Hotels & Resorts, which manages 64 independent and lifestyle properties (inclusive of signed pipeline)—including the Intrigue Hotels & Resorts by Interstate division—said business has picked up in the segment.
“Business has been robust, particularly in new development projects, and we anticipate strong performance in 2020 and beyond,” said Paul Eckert, Interstate’s VP of operations, independent, lifestyle & resorts. “Interstate plans to continue growing this segment, which is aligned with our vertical deployment in this space. In addition to independent, boutique and resort growth, we are seeing an emergence of soft brands as owners have recognized the ever-changing consumer travel habits and the importance of experiencing the authenticity of a destination.”
Experience is a buzzword when it comes to independent boutique hotels. Guests are looking for that one-of-a-kind experience.
“The biggest trend we see at the moment is what actually is the key to keeping our sector thriving: the multi-concept properties where the hotel is more than just a hotel,” said Kiradjian. “Traditional luxury and upscale hotels have found it hard to compete with today’s lifestyle-driven hotel brands and independent properties that place enormous emphasis on experience. Additionally, lifestyle activities such as culture, art, F&B, wellness and more add to that experience.”
“Owners, managers and consumers are trending toward lifestyle hotels because of the overall trend toward experiential travel,” said Pederson. “It’s not always about the product; it’s about the experience. Guests are looking for a sense of place, not just a place to sleep.”
CBRE’s Feighner pointed out that there is an increasing number of boutique hotels being developed in secondary and even tertiary locations.
“Historically, boutique hotels were predominantly located in major urban center and gateway cities such as Los Angeles and New York City, but today are being opened across the country, as consumer demand for unique and authentic experiences continues to grow,” he said. “In the last two years alone, our data shows that the number of boutique hotels under development has nearly doubled from 721 properties in 2016 to 1,378 properties by year-end 2018.” For the referral group & independent category, CBRE shows 173 properties in the pipeline through July 2019.
Pederson described managing a boutique hotel as being “a lot of work, but you get to have a lot more fun.
“You have to live and breathe the story of the place. You have to convey the ambiance, the experiences, the unique aspects,” he said. “You’re spending dollars marketing your story as opposed to spending dollars signing up for a brand pipeline. What’s interesting about the wave of soft-branded hotels is that you are paying the brand but you still have to convey the character and story outside the brand affiliation. It’s subtle, but there’s a definite difference there.”
What’s in store for the future of the independent boutique segment? The executives we spoke to have a difference of opinion.
“Boutique hotels are forecast to continue to become more mainstream and remain a favored asset class among hotel developers and owners,” said Feighner. “However, after more than 10 years of continued growth, we are forecasting a slowdown in RevPAR growth in the near term, given the uncertainties surrounding economic and fiscal policies both at home and abroad. While the current data suggests a blip in 2020, we have recently revised our forecasts for demand and ADR growth in 2021 to be more positive than anticipated 90 days ago.”
“I believe we will continue to see new supply in the lifestyle segment and a further blending of independent hotels and soft brands when it comes to offering localized experiences,” said Eckert. “We see continued solid performance with more room for growth as it pertains to our strong development pipeline.”
“Many of us subscribe to the theory that in a downturn, independents tend to get hurt more than branded hotels do. My thought is that in markets where oversaturation is becoming more prevalent and growth is slowing, the independents will follow that theory and suffer a little bit more,” said Pederson. “Unless the individual property has done a great job promoting its story, it’s going to face that market dip.
“However, if you look at the long-term technology, it’s only going to improve the independent boutique segment,” he continued. “This technology enables potential guests to find you in unique ways. That’s when the independents will outpace the branded hotels. Once the consumer finds you, they find what they want, and they’re hooked. The key is finding you in an oversaturated search. People’s expectations are higher and they will continue to raise the bar. That’ what we’ll be striving for.”
“This is a sector that is in no way slowing down,” said Kiradjian. “It’s clearly an exciting time for the boutique sector.” HB