CAMBRIDGE, Mass. — Due to their operating model, select-service hotels tend to be more resilient to different economic pressures while drawing in demand by being a more affordable option.
That doesn’t mean, however, the hotel segment is bulletproof.
During a panel on select-service hotels at the recent Hospitality Asset Managers Association conference, hotel executives spoke about how they’re navigating the current demand environment and what they’re doing to drive revenue and control costs.
Hospitality Investors Trust, a public non-listed real estate investment trust, was expecting about 2% revenue per available room growth for 2025, said Mark Fowler, chief operating officer and head of asset management. April, with its Easter shift and recent economic uncertainty, became a concern. Looking forward, however, the base of demand looks OK, and they expects to see growth from May onward.
“So, that’s what we’re looking forward to,” he said.
Government-related demand makes up about 5% of the company’s mix, he said. There was some decline in March and April, but the sales team’s focus has been on executing best available rate. There’s been a lift in corporate demand generally, and there’s also been some lift on Tuesdays.
“Group has been our mantra for years now, but group, group, group has really been a focus,” he said.
Given the recent uncertainty, BRE Hotels & Resorts has been focusing 'what can be controlled,' said Kristen Townes, vice president of asset management.
“You can control your sales effort, going out and making sure they’re focused on that contribution, making sure the teams are over-penetrating and negotiating and not dropping rate,” she said. “Being very mindful it’s not a race to the bottom.”
During the pandemic, there were a few hotels that significantly outperformed while everyone else was significantly underperforming, said Esther Gayfield, vice president of hotel asset management at Highgate. It really came down to the leadership of the hotel, which sets the attitude and tone about what was possible. One hotel general manager chased business aggressively, even to the point of following construction workers to a job site, talking to their boss and convincing them to switch to her property.
“That’s how aggressive and energized she was,” Gayfield said. “Those hotels significantly outperformed. So, my focus is on how can, if things do get bad, how can we get that RevPAR penetration?”
The teams can’t be distracted and wringing their hands over what’s to come, she said. They need to stay focused on making the right choices, and asset managers often underestimate their level of influence over the operators and leadership teams, especially in select-service hotels where many general managers are new to their roles.
“A lot of these folks did not go through the pandemic before, and they really respect the opinion of their asset manager, their owner’s representative, and so the tone that you take with them could really influence their attitude and how they feel about what is going on in the world," she said.
Hoteliers should remember what select-service hotels were built for: Monday through Thursday demand from corporate travel with one person in a room, said Marc Dober, most recently with Cerberus Capital Management. That model has evolved in recent years with bleisure travel resulting in four to five people in a room, using everything in a hotel to its maximum.
With extended-stay hotels, that 30-plus day model is key, he said. During an analysis of a Residence Inn, they found while focusing on that 30-plus model, it lost share but the profitability was there.
In terms of other impacts on profitability, programs such as Hilton’s Light Touch housekeeping, when done correctly, can save hoteliers money, Townes said. That’s not necessarily possible in all cases, particularly in markets that require contract labor.
“I thought that was a really great initiative by the brand for Light Touch and to really reset past expectations,” she said.
There’s always opportunities to try to reset expectations, Dober said. The brands had a chance during and after the pandemic to reset the breakfast experience, but they went back to their normal ways of trying to one-up each other. Breakfast costs have spiraled over the years, and instead of going back to how complimentary breakfasts used to be alongside relaxing housekeeping schedules, they came back full force.
In a select-service hotel, the amount of breakfast offerings amount to $3 to $4 per occupied room when they used to cost $1.50 for a continental breakfast, he said.
“They all one-up each other,” he said. “They don’t have to stop. … It’s guest service scores. They want to keep that loyalty to the brand, and they have to do that.”
People don’t value free things, Gayfield said. An initial offering will garner strong service scores, but then guests get bored with it and the scores go back down. The brands want to improve their scores, so they’ll keep changing offerings.
Parking fees can be a source of ancillary revenue, though some select-service general managers may not want to implement them, she said. It may require getting waivers approved by brands, and even where these fees are in effect, the operator may not be executing correctly.
At an airport hotel, which she called a “no-brainer” for parking fees, the results were not correlating with the plan, she said. They walked through everything step-by-step, and it all sounded correct, but things weren’t lining up. While in that market, she stopped by the hotel in question and made a discovery.
“They were not actually implementing anything that they told me they were,” she said. “So, we can’t just assume because they tell us they’re doing all these things."
Often the top line teams don’t buy in, and they’ll view these additional amenities as things they can offer for free or at a discount.
“We really have an opportunity to get them to buy into these fees and hold firm to understand the value of their offering,” she said.
Airport hotels often provide a free shuttle service, but that transportation is expensive and “kind of ridiculous,” Fowler said.
“We went to dinner last night. We didn’t call the restaurant and say, ‘Send an Uber to pick me up,’” he said. “We got an Uber, and we went to dinner.”