Boutique outpacing other hotels, with lifestyle leading the way

Through the first six months of 2023, demand remains strong for boutique hotels with the lifestyle categories pulling ahead of its soft brand competitors in terms of performance, according to a new report by The Highland Group.

Kim Bardoul, partner for The Highland Group and author of the report, said the soft brand hotel segment has been all the rage over the past dozen years, but the data from the first two quarters of this year shows that the lifestyle segment is averaging the largest increases in performance.

“Lifestyle hotels have pulled ahead,” Bardoul said. “Especially in their increases in performance but also in their supply projections.”

Those supply projections in the report show that almost 60,000 branded boutique hotels are in some phase of planning or are proposed to be built by 2027.

But Bardoul admits that number is hard to believe because it would be almost triple the typical rate of growth annually for boutique hotels (the report says that based on historical supply, the boutique segment averaged 11% annual growth from 2017 through 2022.)

“I’m not saying that these hotels aren’t reputable enough to increase in supply,” Bardoul said. “I’m not saying that they are not being considered by developers. But that’s a lot.”

Bardoul also said because lifestyle brand boutique hotels are typically new build (while soft brands are typically conversions), the “economic conditions are going to dampen all new supply going forward to a degree.”

Overall, boutique hotel room revenue increased 8.5% from 2023, with the lifestyle upscale-upper midscale category leading the way with a 16.1% increase. While the lifestyle upper upscale-luxury category had an 11.7% increase, other luxury categories were lagging behind the average, with soft brand luxury (2.7%) and indie luxury (1.5%) having the slowest growth rates.

“I think it’s just the luxury product which is getting some rate pushback. And in the boutiques, the luxury rates really do tend to be [higher],” Bardoul said.

Demand for boutique hotels was up 8%. That’s stronger than the same class of non-boutique U.S. hotels, which reported growth of 6%. The lifestyle upper upscale-luxury category led the way with 12.4% growth.

Boutique hotels reported only a slight increase in average rate, with an overall increase of just 0.5%. The lifestyle upscale-upper midscale category had the biggest increase at 6.7%, while the indie luxury category had the biggest decline at -3.3%. The report said that although average rate growth has stabilized for the soft brand and lifestyle luxury categories, the indie luxury average hotel rates ($414.73) were still higher than all other U.S. luxury hotels ($338).

Bardoul said if there’s one category where she projects future growth, it’s the soft brand upscale upper-midscale category.

“It doesn’t look so great [in this report]. Part of that is because Tapestry [by Hilton] bumped up in class. So it left a vacant seat,” Bardoul said. “But there’s been a lot of brands introduced in that category… there’s been some more affordable boutique products introduced in this class that I would expect are going to increase in number.

“They are well located and well put together, and they stay true to the boutique,” she said. “I don’t see any reason why that class and that price point wouldn’t increase and do better as the year goes on and as the next several years go on.”