Boutique Properties Stand To Bounce Back Best Of All In Hotel Sector
In the decade or so before the coronavirus pandemic, boutique hotels represented a major growth sector in the hospitality industry as the number of brands and properties mushroomed in response to demand for nonstandard hotel accommodations.
Like the rest of the hotel business, boutiques took it on the chin last year. But with the return of travel this summer, particularly the leisure variety, the boutique sector is poised to return to its growth mode as well.
"The boutique hotel trend achieved what it was hoping to in terms of attracting and engaging the millennial demographic," Dreamscape Cos. CEO Eric Birnbaum said. "Some brands did well and others didn't, but because boutique hotels mostly cater to leisure travelers, they're well-positioned post-pandemic as I expect this segment to outperform corporate travel in the near term."
New York-based Dreamscape, which owns residential, retail, hospitality and other properties, counts a number of independent boutique hotels in its portfolio, including the Goodtime Hotel in South Beach, Florida, and the Pod Hotel in Manhattan.
"I firmly believe — and we're already seeing — that people will continue to travel and boutique hotels will do well because they offer the lifestyle-oriented ambiance and programming that travelers are looking for," Birnbaum said.
The desire to return to pre-pandemic travel patterns is strong. Google reported earlier this year that travel-related searches (using the term "travel to") doubled during the three months between November 2020 and January 2021 compared with the same three months a year earlier, before the pandemic. People seemed to be champing at the bit to go somewhere this summer and beyond.
Members of the millennial and Gen Z generations were the most eager to travel again, Google reported — precisely the market that boutique hotels strive to capture.
As a hospitality concept, boutique hotels represent a large number of diverse properties, but they have identifiable characteristics. Highland Group Hotel Investment Advisors, a hospitality consultancy, explains in its 2021 report on boutique hotels that they generally fall into one of three broad classes: independent boutique, lifestyle hotels and soft-brand collections.
Independent boutiques aren't part of national chains, though they can be part of small groups, and are typically 40 to 300 rooms without much meeting space, Highland Group says. They tend to be design-centric and many are developed with a "storyline" or specific branding concept. Examples include 21C, Arrive, citizenM, Delano, Room Mate and ZaZa.
Lifestyle hotels, on the other hand, are nationally franchised brands specifically created for travelers who want boutique lodging. Most are upscale and upper-upscale properties. Examples include AC by Marriott, Canopy by Hilton, Kimpton by IHG and Thompson by Hyatt.
Soft brand collections are nationally franchised as well, but they tend to be one-off properties, such as historic hotels, acquired by major chains but run as if they were not part of the chain.
They too have a storyline or specific branding concept, often a legacy of their past, and also tend to be upscale or upper-upscale. Examples of such brands include Ailia by Marriott, Curio by Hilton, Joie D Vivre by Hyatt, and Sadie by Best Western.
"The largest innovation in the hotel space in the 20th century was the evolution of the soft brands," Birnbaum said. "Many consumers want a boutique hotel experience, and have shown a willingness to pay a premium for this over generic core brands."
Also, Birnbaum notes, owners have opted to place independent assets into these collections as well as convert core-branded properties into boutique soft-branded assets, given the benefits of a large distribution system.
Highland Group reports that in 2019, boutique hotels were performing at capacity as a class and many properties were commanding premium rates, especially as younger travelers eschewed the sameness of traditional lodging. Developers had bet on boutiques, and largely that bet was panning out before the pandemic.
Independent boutique hotel room supply grew 5% annually during the two decades before 2020, the consultancy reports, while lifestyle hotel supply increased at an average of 17% each year during that period. Soft-brand collections grew 19% annually from 2000 through 2020. Even during the pandemic, all three segments of boutique hotels opened a few new locations, and plans for others were not derailed.
Considering that the summer travel season isn't over yet, how boutiques are doing this year compared with last year, especially compared with 2019, is still an open question. However, there are hints that the sector is doing well in the post-pandemic travel environment.
Hilton, for instance, reports that among its various brands, average first-quarter 2021 occupancy was down to 29.7%, off 9.4 percentage points from 2020. Only two Hilton brands saw higher occupancies year-over-year in Q1 2021. One of them was the boutique line Tru by Hilton, rolled out in the 2010s to appeal to millennials.
In fact, Tru by Hilton did best among all the company's brands for occupancy growth, gaining 5.2 percentage points to score occupancy of 53.5% for the quarter. Home2 Suites came in second with growth of 3.6 percentage points.
Like the rest of the industry, boutique hotels began to close in March and April 2020 when travel halted due to restrictions, Highland Group points out.
"In some [boutique] classes, room supply began improving quickly and ahead of comparable hotels from June and throughout the year," the report notes. "Many boutiques also showed [revenue per available room] improvements in the latter part of the year as they began pulling back on rate discounts, placing them in a better position to recapture rate in the recovery years."
Boutique specialists are also returning to previously delayed expansion plans. In July, the Netherlands-based citizenM announced five new hotels in the United States, including properties in Miami, Los Angeles, Washington, D.C., and San Francisco, that will double the company's U.S. presence to 10 hotels and raise its global portfolio to 27 hotels.
"The concept and business model behind citizenM has been highly successful and is well-positioned for post-pandemic travel," citizenM Head of Development & Investments, North America Ernest Lee said.
"Our focus on technology, design, experience and price has always made us a hit with young travelers and those young at heart," Lee said. "Also, our ability to operate and develop more efficiently helps us in a rising cost environment."
CitizenM counts as an independent boutique hotel, opening its first property at Amsterdam’s Schiphol Airport in 2008 and later expanding in Europe, Asia and North America. The company will continue to seek sites in the United States, according to Lee.
To attract and keep the loyalty of millennial and Gen Z travelers, boutiques need to pay more attention than ever to unique design and storytelling by a property, according to boutique developers.
“As the city reopens, our goal has been to bring a fresh hospitality option to Chicago to welcome avid travelers," Phoenix Development Partners CEO John Mangel said about the redevelopment his company is working on in Chicago, which will convert the 1905-vintage 226 West Jackson building into a Canopy by Hilton lifestyle hotel and a Hilton Garden Inn.
The building is the former corporate headquarters of the Chicago & Northwestern Railroad, and Phoenix tapped design specialist Anderson/Miller Ltd. to do the interior design for the new properties.
"Our goal was to have the guest experience design inspired by the golden age of train travel," Anderson/Miller principal Laurie Miller said. "The two-story combined lobby/reception space is meant to evoke the excitement of bustling arrival halls."
Custom guestroom artwork also draws from the design story, inviting guests to search for hidden Chicago cultural touchstones in a nod to children's magazine feature "Highlights Hidden Pictures," Miller said.
It was also important to the team to include aesthetic references to sleeper car design, Miller said, including in the physical canopy of guest room headboards, the detailing of millwork and metal finishes throughout. Following research on Chicago's Pullman Historic District, where sleeper cars were made in the late 19th century, Anderson/Miller was further inspired to deliver design themes evocative of the Pullman Palace sleeper car.
"The accommodation itself is the ultimate destination," Miller said.