Select- or full-service? Hybrid-service might be the best of both

NATIONAL REPORT—While what the industry typically thinks of as select-service is continuing its dominance in the market, new additions to this type of hotel development are popping up across the industry and gaining popularity among guests, particularly those staying in urban areas where surrounding views and a younger clientele may demand a little bit more from a property—like, perhaps, a rooftop bar and restaurant.

“I think it’s our job as an industry to keep up with the evolution of consumer preferences,” said Robert Habeeb, president and CEO of Rosemont, IL-based First Hospitality Group Inc. “I think we’ve done a pretty capable job of that over time, and we have to continue to do so.”

There were 498 full-service hotels (with 106,191 rooms) in the construction pipeline in the United States at the end of Q1 2017, according to published data by Lodging Econometrics. There were a total of 3,685 select-service projects (with 421,860 rooms) in the construction stage during the same time period.

Ethan Kramer, president of Fairfield, NJ-based Paramount Hotel Group, believes the status of hotel development in general is just to the left of mid-range (that’s if the left end of the spectrum is minimal new hotel development and the opposite end is overbuilding). His assessment of the lodging market excludes major U.S. cities. He also acknowledged increasing construction costs and interest rates, noting these conditions are giving lenders reasons to pull back financing. “Select-service remains as the dominant type of new hotel development,” the executive added. “With respect to commercial hotels, there are only a handful of suburban markets that make sense for full-service development.”

Building upon a select-service property by tacking on a “well-done amenity” can assist with driving occupancy, ADR and total spend per room, said Rick Takach, chairman and CEO of Vesta Hospitality, a Vancouver, WA-based property management company. “Examples include a professional-grade fitness center, enhanced business center, a rooftop lounge—or a non-chain, full-service, sit-down restaurant,” he pointed out. “Regardless, these extensions of select-service—and I think that’s a better way of looking at this trend or strategy than implying a new property type—must be market-driven and guest-driven and be compatible with brand [franchise standards].”

These “hybrid-service properties”—as Habeeb calls them—can benefit from the F&B offering, marketing its brand separately from the hotel (something he encourages). This allows the hotel to leverage the restaurant’s success as a way to attract additional guests to the hotel, another promotional tool. “When we market the hotel, we advertise that you have this very popular local F&B offering as part of the hotel experience,” he explained.

Various property types often mean more to the industry than consumers. Brand loyalty has progressed, and guests are now seeking different needs and wants from brands. “Consumers followed these brands based on their specific niche, and I don’t know that that’s as much true anymore—especially with the emergence of urban-center hotels,” Habeeb said. “All of our urban-center hotels are atypical of a select-service hotel.”

“I think it’s more about how can we improve on our core platform at any given site, versus rushing up-market to a label,” Takach said. “That hybrid can take many forms. Remember, in contrast, full-service implies a lot in terms of investment thresholds and financing, which we always approach cautiously, as well as staffing. Also, how will the investment marketplace deal with these hybrids in terms of valuations and future transactions? Labels can get expensive.”

Whether a new hotel type is warranted, the select-service model is—without a doubt—advancing, partly due to guests expecting more from select-service properties. “Certain select-service concepts are evolving by adding features that have traditionally been found in full-service,” Kramer explained. “The difference being that these elements tend to be purposely focused so as not to exceed cost parameters. For example, will the larger lobby or rooftop bar offering provide an adequate return on the added cost of construction and operation? Will the larger meeting space with limited F&B support be justified based on utilization in that market? However, with respect to larger meeting/banquet space in select-service hotels, these projects are firmly in the minority and a fraction of the new development that has taken place.”

Adding rooftop bars and creative dining features to a property can appeal to a particular clientele, but what trumps the needs of guests in this aspect is location. Rooftop bars and restaurants tend to be popular for those staying in urban locations. These F&B offerings also attract local patrons and open up the property for smaller group events. “Rooftop bars and creative dining experiences can certainly enhance a property and make it a destination,” Takach said. However, he offered words of caution: “Adding F&B options to a property’s menu must be based on solid market research.” Base decisions on concerns like whether it will be profitable as its own cost center.

“We do have one in planning for a waterfront hotel that will be part of a marquee mixed-used development,” Takach said. “We’re looking closely at issues like secure access and all-season, multi-use performance. For example, can that rooftop lounge with a great view and warm breeze on a summer’s evening be converted to a year-round space for smaller meetings?”

Not everybody agrees the lines between full-service and select-service hotels are softening—especially in the upper-upscale market segment. “The full-service experience does not compare to a hybrid, which may focus just on one aspect of a full-service complement of amenities and product offerings,” Kramer said.

While the industry has control of property types, the market still drives decisions in that regard (for instance, location and the success of competitors). “What is my clientele?” is a question Takach said should be asked. Moreover, he added, “What tweaks or additions might I want to make, and will we get buy-in from the franchisor? What can I do to maximize value and return on investment?” HB

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