July 19, 2024
Lifestyle Boutiques Driving Leisure Hospitality Market

Carlos Rodriguez is CEO of Driftwood Capital, a leading hospitality sponsor with investment, development, lending and management plaforms.

An increasing number of travelers today are as interested in collecting memorable experiences as they are in collecting travel rewards, and this is driving more consumer demand and investor appetite for boutique-style, soft-brand hotels that offer a unique setting for these experiences to unfold.

Consumer interest in soft-brand hotels—hotels backed by major brands like Marriot or Hilton that have a more boutique feel and unique hotel names—has been ticking upward for roughly the past five years, driven in large part by the less brand-conscious millennial traveler. But since the pandemic, there has been an indisputable surge in interest in experiential travel and, as a result, distinctive hotel properties that enhance or enrich consumers’ understanding of a particular place.

In fact, according to a January report by Tripadvisor, travelers indicated that in 2022 the top three most important considerations in their future travel plans were “to get immersive by seeing new places, having new experiences and learning about history and culture.” Similarly, a survey of consumer travel sentiment last April by PwC suggests that in their quest for new experiences, even highest-tier hotel loyalty program members are willing to switch brands in exchange for a new or better experience. It’s no surprise, then, that “independent boutique hotel supply has grown 5% in the past 10 years while soft-brand collection supply has increased 19%,” according to a report by The Highland Group.

Furthermore, according to the report, boutique hotels outperformed other hotel sectors in 2020 during the height of the pandemic on other metrics, including revenue per available room (RevPAR) and average daily rate (ADR). To capitalize on the overwhelming traveler demand for unique experiences and equally unique properties in the post-pandemic climate, hoteliers and hotel groups are getting creative. Hence, we see large hospitality investment companies like Pebblebrook branching out into alternative accommodations like treehouses and “glamping” sites, and companies such as IHG launching new soft brands to lure in independent hoteliers. As a longtime hotel investor, I see strong evidence in support of the continued growth in the boutique/soft brand segment of hospitality.

For example, a hotel my company manages, The Canopy West Palm Beach Downtown, first opened its doors in May 2020. Following the start of the pandemic’s first wave and lockdowns, it took over six months before the hotel was able to achieve an occupancy rate of 50%. However, once travel resumed, it was also one of the first and fastest properties in my company’s portfolio to rebound. The occupancy rate nearly doubled between the end of 2020 and 2021, and the hotel achieved an occupancy of 85% and a rate of $355 by the end. This past spring break was particularly strong, giving the hotel its first month of breaking a $400 ADR at nearly 95% occupancy, significantly outperforming budgeted expectations.

To help guarantee success with these types of hotels, make sure they are in easy-to-drive-to and desirable locations like the Florida coast. In keeping with what’s typical of independently owned hotels, consider inspiration from the local culture and cuisine when choosing design sensibility and dining concepts.

Like with a recent acquisition of my company, a beautifully restored, century-old former Baptist church in Atlanta’s Old Fourth Ward, you can also consider buildings that tell a story and that have historical and architectural significance. To give another example, my company also recently picked up the Scottsdale Resort at McCormick Ranch, a sprawling, hacienda-style resort that was built in 1976 as one of the first true conference center resorts in the country. We chose it not only due to its location in one of the strongest hospitality markets in the country, but for its distinct character, legacy and irreplaceable architectural feature and amenities—none of which could be replicated today. When looking into properties for distinctive hotels, you want to make sure to take care when preserving when you renovate and convert properties like this.

More and more, independent hotels are beginning to see the value in affiliating with a soft brand under one of the major flags such as Marriot, Hilton, Hyatt or IHG. The mutually beneficial arrangement allows the parent company to tap into travelers’ growing appetite for one-of-a-kind properties without having to start from scratch, and the hotel benefits by tapping into the brand’s reservation system and more sophisticated marketing channels, such as loyalty programs.

Under this arrangement, the hotelier has the flexibility to make operational decisions that keep the independent look and feel thriving; at the same time, guests are drawn by knowing that they can expect the same level of hotel quality and commitment to the guest experience that they’ve come to expect with the brands.

In short, travelers are becoming more focused on hotels that support their desire for more enriching, authentic experiences. As people stay longer periods of time (combining business and leisure) and become more selective about how to maximize their travel/vacation dollars, I see lifestyle-oriented soft brand hotels as the next frontier in hotel investing.

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