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Hotel Developers, Investors Betting Big on Boutique, Lifestyle Brands

Like Beer Conglomerates Adding Craft Brewers to Stay Hip (and Relevant), More 'Soft-Brand' Boutique Players Becoming Growth Drivers for Mega-Hotel Companies
January 24, 2018
Rockbridge's Art Deco-style Noelle hotel brand is aimed at young, trendy consumers. Credit: Rockbridge

As competition from Airbnb and other online hospitality services intensifies, the world's largest hotel brands have joined a growing number of boutique and lifestyle hotel specialists in trying to grow larger by going small.

Publicly traded companies like Choice Hotels International (NYSE: CHH), Marriott International Inc. (NYSE: MAR) and Hyatt Hotels Corp. (NYSE: H) along with investment management firms such as Rockbridge and smaller operators such as Denihan Hospitality, are increasingly opening boutique-style mini-chains aimed at specific lifestyle travelers, with an emphasis on tech amenities, off-beat, non 'cookie-cutter' properties and hip décor.

Denihan, Trammell Crow Co. and KochSmith Capital on Tuesday announced plans to bring the Denihan's fourth James Hotel brand property to Armature Works, a mixed-use development breaking ground later this year in Washington, D.C.'s NoMa neighborhood.

Trammell Crow and KochSmith will develop the 204-room hotel and Denihan has been hired to manage the luxury boutique property. The James Washington D.C. is scheduled to open in the winter of 2020, along with the rest of the 780,000-square-foot Armature Works development, which includes a 465-unit apartment building, a 170-unit condominium building, outdoor public spaces and 42,000 square feet of street-level retail.

Vera Manoukian, president and chief operating officer of Denihan Hospitality, called the partnership with such deep-pocketed backers "a perfect example of how we intend to leverage the power of our unique brands and operating platform to drive sustained growth."

Another recent example is Rockbridge's Noelle, a 224-room, 13-story Art Deco-style hotel at Fourth Ave. and Church St. in a section of downtown Nashville becoming known as "Boutique Row" for the cluster of trendy, experience-focused hotel and retail businesses catering to the booming metro's growing diverse population and business base.

Hospitality REITs such as Choice Hotels were early adopters of boutique and other soft-brand concepts. Choice opened 45 of its Ascend Collection-branded upscale hotels in 2017 alone.

"Ascend continues to be a great value proposition for developers. We're seeing a lot of new construction," said Dominic Dragisich, Choice chief financial officer, in a recent call with investors.

Marriott has opened 27 Tribute-brand properties around the world totaling 6,224 rooms, with 16 totaling 2,148 rooms in the development pipeline, including a 127-room asset announced this week in downtown St. Paul, MN. Construction in the Park Square Building will begin this summer.

Hyatt has ramped up construction of its Hyatt Centric boutique brand, including a 127-room property planned for opening in 2019 near the Sacramento Kings practice facility in downtown Sacramento.

The advent of new technologies has opened the boutique sector to hotels and virtually all other industries, said Frances Kiradjian, CEO of the Boutique & Lifestyle Lodging Association.

"We have become an inclusive community. Gone are the days when boutique simply meant intimate," Kiradjian said. "Candy shops, coffee houses and even fitness studios have tapped into the potential of boutique. The reality is that new technologies and an increasingly connected community allow business owners to facilitate wholesome experiences to any demographic, no matter the establishment or product being vended."

With so many new brands out there, owners or all types are working overtime to differentiate their offerings from the profusion of launches by rival chains.

"We're looking forward to see if we’re being impacted by some of these other soft brand launches, but we're just not seeing it in the development community at this point," said Dragisich of Choice Hotels.

Whatever the new trend towards authentic lodging experiences may end up being called, it is here to stay, noted Court Williams, head of executive search operations in New York City for hospitality research firm HVS.

With millennial travels demanding hyper-local experiences specific to a destination, many lifestyle hotel brands have added restaurants, bars and even lobbies targeting local residents as much as travelers. The need to feel safe in this mix of locals and travels gives recognized brands the edge, Williams added.

"Lodging experiences backed by the reputation of established hotel brands offer a higher level of confidence for travelers, which is one reason the rise of shared accommodations [Airbnb and other lodging rented out by private property owners] has not really affected the hotel industry," Williams said.

Managing this mix of simplicity and immersive experiences will be challenging for brands, Williams acknowledged.

"But with lifestyle hotels already comfortable with being 'different' from traditional brands, this segment is perfectly poised to become ground zero for future travel," he added.

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