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January 7, 2015

New Hotels Make Luxury Affordable

By Bruce Serlen

Luxury is back: Recent data from PKF Hospitality Research has shown that revenue for the luxury-lodging segment is poised to grow almost 7 percent in 2015. And while it’s clear that any setbacks the luxury tier suffered during the downturn are a distant memory, few new luxury projects are under construction, given their high cost relative to the construction costs associated with other lodging segments. Partly in response, a new take on luxury lodging has sprung up, a variation on a theme loosely referred to as “affordable luxury.”

Clearly, there’s no one definition of the term, but that hasn’t kept major hotel companies like Marriott International, Wyndham Hotel Group and Hyatt Hotels Corp. from introducing brands they feel will help satisfy this unmet consumer need. While less expensive for consumers to book than the usual luxury property, these hotels are still distinct from the usual mid-price lodging product in design and ambience. “Our market research has identified an independent traveler who is looking for a different type of experience than the one offered by traditional hotels, where consistency has been highly valued,” said Eric Jacobs, CDO for select-service and extended-stay hotels in North America at Marriott International.

At least two of Marriott’s most recent brand entries—AC Hotels by Marriott, presently expanding in the U.S., and Moxy Hotels, intended, at least initially, for Europe—are aimed to target this independent traveler. As Bill Hall, brand SVP for Wyndham Hotel Group, told it, the group’s TRYP brand speaks to that personal experience. “The idea is to offer an opportunity for each guest to connect with the hotel in his or her own way,” Hall said. TRYP originated in Spain and has since expanded to other markets, including the U.S.

Bye To Banal
More than the cookie-cutter brands of yesterday, these brands are much more specific to the destination in which the hotels are located. “Each hotel is meant to fit within its market. We’re talking about a new target traveler, one that is less brand-focused overall and much more community-focused instead,” said Julianne Smith, SVP of two of Hyatt Hotels Corp.’s new brand entrants, Hyatt Place and extended-stay Hyatt House.

The appeal is clearly to a younger demographic, specifically the frequently cited millennial generation, noted Sumner Baye, president and partner of development consultant International Hotel Network, LLC. “Though the jury is still out on what the millennials will really want in a hotel stay as they mature, despite all the speculation,” he said.

Haute Look For Less
Contemporary, stylish design is very much a part of the affordable luxury concept—in guestrooms as well as public spaces. Jacobs draws a parallel from the fashion world between brands like AC by Marriott and Moxy and such popular global retail brands as H&M and Zara. “The clothes they sell are fashionable, but at a reasonable price. These hotel brands offer a similar value proposition,” Jacobs said, adding that, “Millennials and other consumers today want more for their money.”

Given the emphasis on design, connection to local communities, young demographic and lack of brand-wide prototype, it makes sense that these brands are paying special attention to downtown urban markets. As an example, “AC by Marriott doesn’t belong in a suburban office park. We already have Courtyard, SpringHill and Residence Inn for those locations,” Jacobs said.

A focus on urban markets also opens the door to adaptive reuse projects, including conversion of former banks, warehouses and other types of commercial—often historic—structures that are typically more interesting. “Repurposing these buildings can be a challenge, but the results can be highly rewarding,” Hall said.

Included in this focus on urban markets would be emerging neighborhoods, typically those close to the downtown core. They’re just becoming viable for hotel development, possibly former industrial neighborhoods that may already be attracting artists, galleries, clubs and a restaurant scene. “These would be burgeoning areas that a few years down the road will be flourishing,” Sacco said.

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