Non-Branded Hotels Outperforming the Competition

If you had to write a state of the union speech for independent hotels, you would likely follow every U.S. president’s lead and comment that “the state of the union is strong.” Indeed, in 2015 hotels not affiliated with a brand showed occupancy growth of 2.5 percent, ADR increases of 4.4 percent, and RevPAR acceleration of 7.1 percent. At this point in time, both investors and owners should find the possibilities presented by independent hotels very appealing.

That said, the U.S. lodging industry is dominated by brands. Roughly two-thirds of all rooms are chain affiliated, which, as defined by STR, means that three or more hotels use the same brand name, marketing message, and franchise headquarters. The remainder of the industry, some 1.5 million rooms, are not affiliated with a brand, hence independent. Independent properties can run the gamut of chain scale, with price points ranging from very high in luxury hotels on the coasts to more reasonable in very limited-service motels in the middle of the country.

Hoteliers may decide to forgo a brand association for a variety of reasons, whether they be financial, strategic, or even that the ownership group is just happier running its own ship. The real question is whether branded hotels perform better or worse than their unbranded counterparts. The verdict is of course impossible to render on a high level, as all hotel demand is local and so is the answer to this question. What we can report is that the absolute ADR for a chain hotel in 2015 was $121, while for an independent hotel it was $118. Additionally, branded hotels reported an occupancy of 67 percent, while independent hotels saw an occupancy of only 62.2 percent.

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However, the industry is now in the later part of the cycle, a time when growth rates are historically stronger in the non-branded universe. In 2015, independent hotels grew RevPAR by 7.1 percent, while branded hotels grew by only 5.9 percent. When digging into the numbers, we also observed that price increases were exactly the same. Both sets of hotels—branded and independent—grew ADR by 4.4 percent. So the difference stems from very different occupancy growth rates. In the case of chain-affiliated hotels, occupancy was up 1.4 percent from the previous year. Independent hotels had a much stronger performance, netting about 110 more basis points and growing occupancy by 2.5 percent.

Despite robust growth, the independent marketplace does have some obstacles. First, data shows that consumers of independent hotels seem to take longer to return. Perhaps this is because travelers are simply looking for the most economic option, and are not necessarily brand-loyal. However, one could argue that in some cases the independent hotel, through a reputation built over decades, is indeed a brand on its own, as some “grande dame” hotels have successfully proven.

It is worth noting, though, that as much as independent hotels are now outperforming the rest of the industry, historically they have seen a quicker downturn when the economy sours. In 2009, branded hotels lost 16.4 percent in RevPAR, but independent hotels had it even worse with a RevPAR decline of 17.4 percent. That all said, “Fish while the fishing is good” to quote STR Chairman Randy Smith, and right now the “fishing” seems to be really good for independent hotels.

About the Author
Jan Freitag is senior vice president of STR.

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