US boutique hotels hit higher RevPAR than counterparts

NATIONAL REPORT — Boutique hotels are achieving higher RevPAR and ADRs than the same classes of other hotels in the U.S., according to a new study by Atlanta-based The Highland Group, Hotel Investment Advisors Inc.

The data in The Boutique Hotel Report 2024 found that some segments — upper and upper upscale — were higher by a large margin, while luxury boutique hotels still finished strong with stabilized rate growth.

The report found that although this type of hotel has a relatively higher concentration of rooms in urban centers, there are increasing opportunities for boutique hotel development in tertiary markets.

One developing trend is the number of small, suburban town centers exploring adding a boutique hotel to entice consumer appeal for their immediate area.

“A well-done boutique hotel, while serving a town with unique accommodation, offers a sense of place if adeptly immersed into the vibe and history of the local community, and provides an appealing location for guests and locals to gather,” said Kim Bardoul, partner at The Highland Group and author of the report.

Almost 70% of all boutique rooms listed in the report are in the upscale and upper upscale segments. According to STR/CoStar data through January 2024, only two classes reported RevPAR growth compared to the same period in 2023: upscale, at +1.6%, and upper upscale, at +3.1%.

The report found that new boutique openings continue. Independent boutiques’ supply increased at a compound annual average of 3% from 2018 through 2023, while soft brand collections have grown at 4%. The largest increase was in lifestyle hotels, which have grown 11% annually over the past five years.

Boutique hotel segments in the table below ranged in occupancy from 59% to 69% in 2023, while comparable class U.S. hotels ranged from 66% to 67% in occupancy. ADR in the boutique samples ranged from $150-$457 in 2023, while comparable class U.S. hotels ranged from $134-$349.

The report divided boutique hotels into three segments: independent (original boutique hotel), lifestyle (boutique but affiliated with large franchises), and soft brands (retain name but benefit from franchise affiliation). It also disclosed detailed financial reports from 2022 for the three segments.

Independent boutique hotels received 12.1% of their revenue from F&B, had a gross operating profit of 38.8%, occupancy of 63.2%, ADR of $194.17 and RevPAR of $122.63. In terms of expenses as a percentage, those hotels had administration and general expenses higher than their counterparts (13.1%). They spent more on property operation and maintenance (5.1%) than lifestyle and soft brand segments. Independent boutique hotels also spent a higher percentage (4.9%) on management fees. Their EBITDA/net operating income (26.6%) was also the highest of the three segments.

Lifestyle boutique hotels received 22.2% of their revenue from F&B, had a gross operating profit of 37.6%, occupancy of 68%, ADR of $249.51 and RevPAR of $169.56. In terms of expenses as a percentage, those hotels had administration and general expenses of 9.6% and spent 4.1% on property operation and maintenance. Their EBITDA/net operating income was 27.7%.

Soft brand boutique hotels received the highest percent of the segments (31.7%) of their revenue from F&B, had a gross operating profit of 30.4%, occupancy of 63.3%, ADR of $269.89 and RevPAR of $170.71. In terms of expenses as a percentage, those hotels had administration and general expenses of 9% and spent 4.4% on property operation and maintenance. Their EBITDA/net operating income was 22.2%.

The report also showed that food and beverage (F&B) could provide significant revenue for independent and soft brand boutique hotels that utilize rooftop bars. The nine hotels included in the study with rooftop bars collectively achieved an ADR of $292 in 2023, with average beverage per room revenue at 24%. F&B contributed $171 per occupied room, with beverage sales equaling $58. The total room revenue for these hotels was 60%, with F&B producing 35% of the revenue.