REPORT FROM THE U.S.—Micro-room hotels have become a more prominent part of New York’s overall room supply, and are drawing a wider array of brands and investors while upending the status quo for long-term players in the market.
Loosely defined as properties with bathroom-inclusive rooms that average less than 200 square feet, micro-room hotels once were solely the arena of local players such as Pod Hotels and Arlo Hotels, as well as European imports such as Yotel and CitizenM. Now, larger U.S. hotel companies are looking to expand their fledgling brands within the most lucrative U.S. market.
For example, lifestyle-hotelier Ace Hotel Group debuted its Sister City offshoot in Manhattan’s Bowery last February, and Hilton plans to bring its new Motto by Hilton micro-brand (average room size: 163 square feet) to Chelsea next year.
Also emblematic of this trend, Marriott International’s European-born Moxy brand has added four Manhattan properties totaling more than 1,500 rooms within the past three years, including new hotels in Chelsea and the East Village last year. Another Moxy is slated for the Lower East Side next year.
In the meantime, the specialists are trying to hold their ground. Pod Hotels, which debuted in Midtown East in 2007, opened its largest property, Pod Times Square—with 665 rooms and 45 larger “Pod Pads” —in early 2018. Amsterdam-based CitizenM, which opened its first New York hotel near Times Square in 2014, opened a 300-room Bowery property in 2018.
Micro-rooms now account for about 5% of New York City’s inventory of 125,000-plus hotel rooms.
“There’s a component of folks who are becoming OK with giving up space in the guestroom for more activity in common areas, and are more willing to pay close to what they’re paying for a normal room,” said Mark VanStekelenburg, New York-based managing director at CBRE Hotels.
“If you look at a Hilton Garden Inn or an Aloft, you’ll have a guest room of 200 to 300 square feet. If you’re able to build one-and-a-half to two rooms in the same space but you’re getting 90% of the rate, it’s a win-win.”
The growth of the segment might not be such a positive development for the overall market, especially looking at select-service properties in Manhattan. With the new micro-room properties helping drive up New York’s room count by 3.8% in 2019 compared to 2018, the city’s revenue per available room fell 3.5% from a year earlier—the second-steepest drop next to Seattle among the largest U.S. hotel markets, according to STR. (Editor’s note: STR is parent company of Hotel News Now)
While New York’s average nightly room rate remained the country’s highest in 2019, that too fell, by 2.4% from a year earlier, to $255, STR data shows. A search for late-February weekend rates revealed Moxy, Arlo and Sister City quoting nightly rates at 30% to 50% less than that figure, with Pod offering even lower rates.
With increased competition, micro-room brands are looking to differentiate themselves beyond their buzzing lobbies and rooftop bars.
Sister City touts its Japanese- and Scandinavian-influenced design touches as a way to provide guests what Ace Hotel Group President Brad Wilson calls an “urban oasis” vibe.
Rani Gharbie, Pod Hotels’ head of acquisitions and development, said his company benefits from basing its concept on the smallest room size (typical rooms are about 125 square feet), and from more than a decade of honing the concept.
“We’re a real estate development firm first. We’re not branding people sitting in an ivory tower,” Gharbie said. “When you own the real estate, you can improve it continuously, and that’s what we’ve done over the past 12 years.”
Arlo Hotels opened its first two hotels in 2016 in SoHo and NoMad, at sites that had been originally developed for the Thompson Hotels’ microbrand offshoot Tommie. The company is slated to open its 489-room Arlo Midtown at the Hudson Yards district in September, and is expanding its typical room footprint by 20% to about 180 square feet.
“We have a captive audience of sophisticated, well-traveled guests who like the small-format rooms, but would also appreciate the option of a slightly larger room format for longer stays,” Arlo Hotels managing director and SVP Javier Egipciaco said.
Moxy’s room prototype, at 183 square feet, is the smallest of any Marriott brand. Its four Manhattan properties are designed to have a distinct feel to represent their respective neighborhoods. The brand has also partnered with New York-based Tao Group Hospitality to give the hotels’ food-and-beverage programs additional cachet. Other touches include repurposing an old basketball gym floor for a meeting room at Moxy’s Downtown hotel and employing a “tattoo artist-in-residence” at Moxy Times Square, according to Toni Stoeckl, VP of distinctive select brands for Marriott International and global brand leader for Moxy Hotels*.
“Moxy takes a select-service model approach, but layers in the experiential aspect,” Stoeckl said. “For every one of the hotels in New York, we’ve added extra touches to make it better than the previous ones.”
The micro-room concepts are also expanding beyond New York, which trails only Las Vegas and Orlando in room count among U.S. cities. Pod Hotels opened a Washington, D.C., property in 2017 and is redeveloping a downtown Los Angeles site that’s slated for a 2021 opening, according to Gharbie.
“We can imagine Sister City in similarly dense, design-conscious, global cities like Tokyo, Copenhagen or Paris,” added Ace Hotel Group’s Wilson, whose primary brand opened its NoMad hotel in 2009.
In the meantime, the micro-hotel brand stalwarts continue to show typical New York bravado when asked about larger players infringing on their turf.
“Everybody has been bearish about New York, as well as cities like San Francisco and Los Angeles, but Pod as a micro-hotel product will always weather better than other folks,” Gharbie said.
“We’ve proved it works,” added Arlo Hotels’ Egipciaco. “You can’t blame the big brands for replicating it.”
*Correction, 4 March 2020: This story has been updated to correct Stoeckl's title.