Developers Check into Boutique Hotels

Boutique hotels, which focus on high style, personalized service and trendy restaurants, are growing in number as more developers tap into this lucrative segment. In fact, some of the nation's largest hotel companies are getting in on the action — big time. Starwood Hotels & Resorts, InterContinental Hotel Group, and Choice Hotels International are among the chains which have recently announced plans to either expand their network of designer hotels or enter the market with new brands.

With 18 W hotels worldwide, Starwood is aggressively expanding and has eight hotels under development or construction. Starwood, which considers W to be a “world-class” design brand, “sees enormous potential in developing this genre globally,” says executive chairman Barry Sternlicht.

InterContinental Hotel Group, in turn, is unveiling its first Hotel Indigo “lifestyle brand” property in Atlanta this month. The goal is to build 150 to 200 stylish Hotel Indigos within seven to 10 years, says Jim Anhut, senior vice president of brand development. “Our strategy is to address consumer trends with a brand that lets developers drive revenue into their hotels.”

Choice Hotels also is planning a yet-to-be-named new upscale brand. Details will be announced next year, says David Pepper, vice president of franchise sales and development.

Boutique hotels are hardly new. These stylish, hip hotels started springing up in the 1980s as an antidote to cookie-cutter chain hotels. San Francisco-based Kimpton Hotels & Restaurants and Joie de Vivre Hospitality were among the first companies to recognize that many consumers prefer to “trade up” to boutique properties rather than stay at the same old boxes.

Kimpton, the largest boutique operator with 38 hotels, will open properties in San Diego and Miami in 2005. It also has hotels under contract in Coconut Grove, Chicago, and New York.

“A growing segment of the population wants something more individualistic. Not everyone wants to walk into a hotel room and find the same beige carpet and green bedspread,” says Arthur Buser, managing director at Jones Lang LaSalle Hotels, a leading hotel investment services company in Chicago.

Yet, this trend of consumers “trading up” has become even more prevalent in the past five years. Indeed, boutique hotels are popular. Last year, boutique properties experienced average occupancy rates of 67.1%, compared with 65.9% at comparable full-service hotels, according to PKF Consulting in Atlanta.

Boutique hotels also garnered $139.69 in average daily room (ADR) rates, compared with $113.98 at comparable full-service hotels. This resulted in $93.73 in RevPAR (revenue per available room) at boutiques, versus $73.64, according to PKF.

Travelers are willing to pay more at boutique hotels, enabling operators to charge a premium, confirms Robert Mandelbaum, PKF's director of research information services.

With this in mind, hotel groups and real estate developers also are jumping into the game. Take, for example, Intercontinental Real Estate in Boston, which owns the successful Nine Zero. Average daily rates were well above $200 last year, says Jennifer Thorn, director of sales. Likewise, the fashionable Hotel 71, which opened in 2002 in Chicago, is now an “in” place to stay. Owned by Cleveland-based Boykin Lodging, Hotel 71 is the company's first — but certainly not last — boutique hotel. “As we buy properties, we'll look at the boutique format,” says Boykin President and COO Richard Conti.

Is industry leader Kimpton worried about competition? Chairman and CEO Tom LaTour says everyone will reap the rewards as hotels open and consumers become more aware of the concept. “We're flattered by those who are now paying attention and copying us.”

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