Big hoteliers are focusing on so-called “lifestyle” brands that emphasise style and unique experiences - a change of emphasis accompanied by sleek renovations and big marketing campaigns.
But the funky furniture, sumptuous sheets and iPod-enabled sound systems in hotel rooms have a price. And while operators are raising the bar in their bid to offer unique experiences, hotel owners are footing most of the bill.
Steven Heyer, chief executive of Starwood Hotels & Resorts, said its agreement on Monday to sell $4.1bn worth of hotel properties to Host Marriott would accelerate its transformation to a “consumer lifestyle company” from a real estate-heavy hotel group.
Shedding properties will allow Starwood to increase focus on marketing and branding, as illustrated by plans to launch Aloft, a new stylish-yet-affordable hotel brand that the company hopes will match the success of its trendy W Hotels.
Others are also adding glitter to their brands. Marriott International, which split with Host Marriott in 1993, has introduced a stylish new room design complete with high-tech gadgetry and a branded bedding collection. InterContinental has launched a new ad campaign touting hotels that offer “unique and memorable experiences” and is also slowly expanding its new Hotel Indigo lifestyle brand in the US.
Marriott said owners and franchisees will invest more than $5bn over the next five years upgrading rooms. Cost for building and maintaining Aloft – Starwood’s first franchise brand - will fall to property developers and franchisees.
The string of big hotel property sales in the past 18 months signals that big hoteliers are going the way of Marriott, which does not own most of its properties but makes money from management contracts.
Meanwhile, property owners must keep up with higher brand standards. That pressure is causing friction between operators and owners, who stand to reap few profits and return less money to investors as cash is funneled to plusher mattresses and sleeker furniture.
Growing tension between owners and operators has not yet come to a head in part because conditions in the lodging industry are still favourable.
Still, any more pressure could strain the relationship between operators and owners to a breaking point. Horst Schulze, former president of Ritz-Carlton who announced his second new ultra-luxury hotel chain this September, cautioned that more pressure from rising interest rates and energy prices could be a “big problem”, spurring investors to place their bets elsewhere.
For now, fundamentals in the lodging industry remain strong. As travel recovers and hotel demand increases, hoteliers are able to command higher room rates and post better margins. And upscale “lifestyle” hotel brands belong to one of the fastest-growing categories of hotels. Revenue per available room (Revpar) – a key industry indicator - for the upscale segment grew 16 per cent for the week ended November 5 compared with the previous year, according to Smith Travel Research. By comparison, Revpar at economy hotels grew 11.2 per cent in the same period.
In the past two years, the lodging industry has seen record levels of activity from investors buying hotel properties because of the favourable real estate market and the recovery in travel after a three-year downturn following September 11 2001.
Meanwhile, new supply of hotels has been limited because of the high cost of construction and energy. Hotel operators that own property have been keen to sell off billions of dollars in real estate in order to focus on management contracts. As properties change hands, new owners are often obliged to invest more in renovations and upgrades.
Hoteliers such as Starwood may tout “superior experiences” for guests, but it will be the owners who pay for it.
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