Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
This should be the heyday of independent hotels which by their very nature offer the distinctive experiences sought by many travelers.
Instead, they’re up against huge hotel companies with deep pockets as well as competitors on Airbnb. The result? More independent hotels are either joining the big chains or shutting their doors.
Thirty years ago, about 65% of all hotels were independent, according to the hotel data company STR. Today, less than 40% are independently owned and run.
One of the biggest reasons independent hotels are disappearing is that they’re getting acquired by the large hotel companies or joining them as affiliates to tap into their marketing power.
The chain IHG was one of the first to the trend, buying the boutique hotel company Kimpton in 2015.
Marriott International’s purchase of Starwood Hotels & Resorts in 2016 included the acquisition of the Luxury Collection and Tribute Portfolio. These groupings of affiliated hotels, known as “soft brands,” get access to the big companies’ reservation and marketing resources but keep their individual identities.
Marriott has had its own soft brand since 2010, the Autograph Collection, which now includes more than 175 independent upscale and luxury hotels worldwide. Nearly 90 more hotels are in the process of joining the Autograph group.
The big chains have been expanding their soft brands to meet the needs of travelers looking for unique, boutique or historic places to stay or to add a smaller or different-priced offering to a market where the company sees an opportunity.
Independent hotels that join a soft brand keep much of their own personality. They can make their own decisions on uniforms, dining offerings, furniture and other aspects of the hotel.
The soft brand fee can be significant…commonly 5%-10% of all revenue. In return, soft brand members get help with marketing and can take advantage of the larger company’s purchasing power or property management software.
Joining a soft brand can get even more expensive, though, if the hotel requires significant renovations or operational changes as a precursor to joining the group.
There’s also significant competition from Airbnb. Airbnb is adding inventory to the alternative lodging market, attracting customers who might otherwise choose an independent hotel. That holds down the prices independent hotels can charge.
Independent hotels with strong established positions in their markets are the most likely to reject offers to join a larger group.
But even they admit that it’s getting more challenging to operate as an independent hotel. The major brands can approach corporate clients with a large portfolio and a range of prices.
Online Travel Agencies
Independent hotels can also face higher costs than large chains when working with online travel agencies like Expedia and the Priceline Group who charge a 15%-30% commission when a traveler uses the online booking agency to reserve a room. But larger companies like Marriott use their market power to negotiate lower booking rates.
Independent hotels also rely more on online travel agents to book their hotel guests than the big brands.
Independent hotels also face competition from online booking agencies’ sites. The agencies will sometimes buy key words, including the name of independent hotels, to advertise on Google and steer travelers to their sites rather than to the independent hotel’s site. Meaning those brands can essentially outbid the independent hotel for its own name on Google.
Independent hotels often state that while the hotel appreciates the wider audience exposure provided by online travel agencies, the goal is always to drive direct bookings to their websites. Both for the extra revenue and to own the customer experience from the start.
The big chains have also been building new hotels at a faster clip than independents, according to STR. One reason for this may be that lenders prefer hotel projects that are affiliated with a large hotel chain because they see it as a less risky investment.
Time will tell but it’s clear that independent hotels are under pressure.
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About Beau Beach, CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com