The boutique hotel concept seeks to break the mold of “cookie-cutter” lodging by providing uncommon physical product and guest services. What makes boutique hotels different? They are most often independent, offer unique, stylish accommodations and personalized service that target guests looking for an alternative lodging experience. Some boutique hotels are small and some are very large. The boutique concept has undoubtedly existed since the earliest days of lodging—even if the term has not. Ian Schrager and Steve Rubell are credited by many with bringing the modern boutique hotel to prominence, with the creation of The Morgan hotel in New York City.
The STR (Smith Travel Research) census database classifies 800 U.S. hotels with over 97,000 rooms as boutique—an average hotel size of just over 120 rooms. Independent hotels account for roughly one-half of boutique rooms and are usually smaller, based on guestroom count, than branded boutique properties. Kimpton, W Hotel, Aloft, Autograph, Joie de Vivre and Hotel Indigo comprise over 70% of chain-affiliated boutique room supply. Andaz, Ascend and Element are growing boutique brands that also target guests seeking unique accommodations in their travel experience. Not surprisingly, boutique properties are concentrated in urban markets, with over 55% of room supply located in the top 10 markets. The top three boutique markets—New York, Miami and San Francisco—account for nearly one-third of the segment’s supply.
Brands & independents
Boutique hotels generated $5.7 billion in annual room revenue in 2013, 4.6% of the U.S. industry total and up from a 3.6% revenue share in 2008—compound annual growth of 7.5%. From January 2013 to January 2014, 15 newly constructed boutique hotels with 2,211 rooms opened—about 60% of those rooms were properties affiliated with the Aloft brand. Currently, 31 boutique hotels with 4,822 rooms are under construction. Three brands—Aloft, Element and Hotel Indigo— account for roughly 80% of U.S. boutique rooms currently under construction, with independent properties accounting for another 5%.
Full-year 2013 performance in the segment was good, with revenue per available room (RevPAR) up for the fourth consecutive year at 7.3%, driven primarily by an average daily rate (ADR) increase of 4.3%. Occupancy grew 2.9% in 2013 and reached 74.5%—the second consecutive year of record-breaking occupancy for the boutique segment. This is particularly impressive considering boutique room supply growth averaged 6.7% annually over the past five years. ADR was just over $217 in 2013, still down roughly 7% from the pre-downturn high of $232.42.
Over the past five years, independent boutique hotels have enjoyed RevPAR premiums in the range of $12 – $17 versus chain-affiliated boutiques, driven primarily by higher ADR. From 2009 to 2013, annual independent boutique ADR averaged a premium of over $23. Occupancy comparisons between the two groups are much closer. In 2009, independent boutiques enjoyed a 1.9 percentage point occupancy premium versus chain-affiliated hotels. From 2010 to 2013, the tables turned and chain boutiques averaged an occupancy premium of 1.5 percentage points. So what drives the higher ADR at independent boutique properties? A major factor is that independent boutique hotels are more likely to be located in higher ADR markets. The high ADR markets of New York, Miami and San Francisco account for 39% of independent boutique supply. These same three markets account for only one-quarter of chain affiliated boutique supply. As a result of the distribution differences, over 40% of independent boutique room supply is classified as “luxury class” while less than 25% of chain boutique room supply is classified as luxury. Chains have created boutique brands for a variety of price points that expand the boutique customer base and potential revenue stream. Brands like Hotel Indigo and Ascend have targeted the mid-market guest with a concept that has traditionally been more upscale—and have had good success.
Boutique occupancy is strongest on Saturday night, at 82.7%, based on January 2014 trailing 12 month data, followed by Tuesday and Wednesday nights, both at 77.7%. Peak ADR is reached mid-week, on Tuesday nights, at just under $223—about $5 higher (2.3%) than Saturday’s ADR of $218. Weekend RevPAR premiums have averaged about $14 over the last three years, driven primarily by occupancy. If the traditionally weak Sunday numbers are removed from weekday performance, the weekend RevPAR premium drops to around $7. Business travelers typically comprise the largest share of boutique room nights and revenue at most properties, but the strength of weekend performance indicates that leisure travelers are also a very important component of many boutique hotels’ customer mix.
The future for boutique properties certainly appears bright. While the segment is relatively small in the U.S., growth has been solid and targeted development in vibrant urban and resort markets offers the potential for continued gains in the coming years. Independent hotels that offer local flavor and color dominate the industry in Europe and Asia, and could present an opportunity for savvy brands and marketers that can provide hotel owners and consumers the benefits of affiliation while maintaining a hotel’s unique appeal and charm. Fresh, interesting product in vibrant locations, personal service and great price/value sounds like a winning combination.