Still In Recovery Mode, Boutique Hotels Could Grab An Outsized Share Of Corporate Travel When It Returns
Corporate travel remains rare, but the hospitality industry started coming back to life over the summer as tourism reignited in many areas, and boutique hotel operators say they have an advantage over their larger, corporate-branded competitors when it resumes.
Travelers who spent more than a year cooped up at home are on the lookout for unique properties, ones that can showcase a particular location, or provide better service and amenities.
“Branded hotels can be more cookie-cutter, but the boutique hotel promises a different experience, something more attractive for that weekend trip,” First Hospitality Chief Operating Officer Paul Hitselberger said.
Rosemont, Illinois-based First Hospitality manages and has developed a number of boutique hotels in the U.S., including the Ambassador Chicago, The Drake Oak Brook in west suburban Oak Brook and Hotel LeVeque in downtown Columbus, among others.
Boutique hotels typically have 100 rooms or fewer, usually in either historically significant buildings or in trendy neighborhoods, and frequently highlight the histories of their neighborhoods or cities. Although boutiques always have an independent identity, even the largest, most well-known brands have started their own boutique hotel chains, including the Autograph Collection by J.W. Marriott Hotels and Resorts, and the Curio Collection by Hilton.
“The brands have gotten into this segment as well, and expanded it,” Hitselberger said.
HVS, a consulting firm that specializes in hospitality, does not have specific data about boutique hotels, according to Managing Director, Senior Partner Stacey Nadolny. But Hitselberger and other operators say the boutiques started filling up this summer. And even before summer hit, Hilton reported that its healthiest brand was the boutique Tru by Hilton, launched in the 2010s to attract millennial customers. Although Hilton’s average occupancy was 29.7% in Q1 2021, Tru by Hilton stood at 53.5%.
Developers and lenders have taken notice, and projects put on hold during the coronavirus pandemic are getting back on track.
“There is a positive story to tell about boutique hotels coming out of the pandemic,” according to D2 Capital Advisors Vice President Jack Cortese. “Boutique hotels offer a more personal experience, and travelers, especially millennial travelers, want to feel catered to and connected to the city they’re visiting.”
Millennials had gotten accustomed to staying at Airbnbs, he added, but the costs of those options have been rising, leading many to choose boutiques instead, where they can get far more perks for similar prices.
“The person at the front desk will know my name and have a cocktail waiting for me in the lobby,” Cortese said.
The East Norriton, Pennsylvania-based D2 just arranged $48.6M in financing for the construction of a 123-room boutique hotel in Minneapolis’ North Loop warehouse district, a project that was in doubt earlier this year as its developers floated the possibility of transforming the three historic buildings at 125 North First St. into apartments instead.
Although lenders typically prefer flagship hotels, in this case lenders liked that the 133K SF hotel will be owned and operated by a local group of developers, Cortese added.
D2 Capital Advisors has also almost finished the capital stack for what will be a new, 100-room boutique hotel at 1004 Brett Favre Pass in Green Bay, Wisconsin’s Legends District near Lambeau Field, he said. It was first proposed in spring 2019, but it’s now back on track. When complete, it will showcase the history of the city’s storied football team.
“There hasn’t been a new hotel developed in Green Bay for years,” Cortese said. “But it’s going to be 100% occupied throughout the Packers’ season.”
After the pandemic delayed its planned April debut, The Bradley, a $28M, 124-room boutique hotel in Fort Wayne, Indiana, opened its doors in July. General Manager Zach Miller said he wouldn’t disclose its occupancy, he did say it’s been a pleasant surprise.
“We’ve been very busy since we opened, and we’re seeing occupancy levels that are higher than we budgeted for.”
The hotel, which highlights and promotes many local artists, is meant to take advantage of the city’s recent $440M redevelopment of the former General Electric Campus into a 1.2M SF innovation center, as well as the establishment of a $35M arts district downtown and a $100M revitalization of the riverfront, Miller added.
“People have for too long considered downtown Fort Wayne to be a ghost town, but that’s changed,” Miller said.
Hitselberger also said he couldn’t disclose the occupancy levels at his firm’s hotels. He added that recovery in the hospitality industry is more dependent on location, with suburban markets generally recovering faster than urban ones. But the boutiques have been doing well since the summer.
“We’re not at 2019 levels, but we’re getting close,” he said.
With Covid-19 still causing so much uncertainty, bringing people back to hotels is challenging, and boutiques have a built-in advantage over larger, core properties.
“The boutique hotels have the opportunity to get more creative,” Hitselberger said.
At the Drake Oak Brook, the company introduced outdoor dining during the winter season, providing igloo structures for vaccinated diners, he added.
“Really the sky is the limit when it comes to new experiential activities," Hitselberger said. "When corporate travel resumes, we’ll get more than our fair share of it, particularly the younger travelers.”