DALLAS—Boutique hotels used to be those small, independent, historic properties with four-poster beds and white tablecloth restaurants. Now, a wide variety of hotels carry the “boutique” tag.
So, what is a boutique hotel?
1. It’s more than romance
If you’ve been around the industry a while, you remember brands that had great-looking product but never quite made money. So the big question with these exciting boutique, lifestyle and soft-brand hotels is: “Will they make money?”
For its “Lifestyle hotels, soft brand collections and boutique hotels” report, the Highland Group, partnering with HNN parent company STR, looked at seven samples of hotels in these segments to address this question. Net operating income for these groups of lifestyle hotels, soft-branded hotels and boutique hotels is shown in the below chart.
Net operating income performance is encouraging for these samples. A significant contributor is the beverage department. The below chart shows beverage sales for the seven samples that contribute from 8% to 15% of revenues, except for the “Lifestyle 200-299” room sample. Three of the samples generate more than $8,000 per available room in beverage revenue. Beverage sales enrich the bottom line for these hotels directly. They also create a “place to be” that is active and entertaining for guests, enhancing overall market position.
Net operating income figures suggest that these three components of the boutique market have the potential to prove desirable and profitable to developers and hotel operators.
2. It’s more than those quaint historic hotels
Since Morgans Hotel Group opened properties in the mid-80s in New York City, a new era of boutique hotels have showcased high style furnishings and fashionable lounges. While traditional historic boutique hotels are still being developed, the market has shifted dramatically. Only 22% of boutique hotels developed in the past 30 years are traditional in design.
There are 659 boutique hotels with 54,557 rooms in the United States. Boutique inventory is growing at 3.1% annually, well above the rate of the overall hotel industry.
With modern design styles and fashionable lounges, boutique hotels attract an affluent clientele, among others. Demand has increased dramatically and so has interest from hotel chains. The chains are entering the boutique market in two ways.
Soft-brand collections enable independent hotels, such as boutique properties, to participate in national and global distribution systems while retaining their unique name and style. Many soft-brand hotels are small design-centered properties, such as Casa Monica, an Autograph by Marriott in St. Augustine or the Biltmore, a Curio by Hilton in Providence. However, the soft brands also include hotels that are not boutique, such as Hilton’s SLS in Las Vegas. There are already 208 hotels with 35,000 rooms in soft-brand collections, and the collections are growing at an annual pace of 18%.
Lifestyle hotels are products developed by national franchise systems with multiple brands, national reservation and marketing programs and broad distribution. Products in the lifestyle brands follow tight design standards from their franchise brands. They are known by their brand rather than by a unique name, and they have standardized features. However, they are designed to compete for guests who prefer the cache of a boutique hotel. They also will attract the hotel developer interested in the boutique segment but who associates lower risk with franchised products. There are 178 hotels with 30,982 rooms in 12 lifestyle brands. Lifestyle capacity is growing at 11.5% annually.
3. They will change the face of the hotel industry
Boutique hotel design has already changed the look and feel of branded hotels. New design packages found in branded product, from Hampton Inn hotels to Marriott resorts, reflect the influence of boutique hotels on the overall market.
The success of lounge operations in boutique hotels also is influencing the overall hotel market. Where food-and-beverage operations were minimized in select-service hotels a few years ago, independent and branded hotel developers and operators are examining the revenue opportunities in lounges for their new developments.
The lifestyle brands are incorporating lounges, often with light foodservice, into their standards. Rooftop lounges also have become popular at boutique hotels for the guest experience they create and value they deliver to owners.
Lifestyle brands and soft-brand collections are growing much more quickly than the overall industry. There is an explosion of new brands and products entering this space. While not all the new brands will stand the test of time, the boutique, lifestyle and soft-brand segment will continue to grow faster than the overall hotel industry. Expect these brands and design features to become increasingly mainstream. Over time, they are likely to supplant some of the legacy full-service and select-service brands.
While it’s more business than romance, fine design and those enticing cocktail lounges aren’t bad for romance either.