A few weeks ago, Carlo Wolff wrote an article about the pros and cons associated with developing an independent hotel versus a branded one. It’s a good follow-up to examine the historical performance of independent hotels compared to branded properties throughout the United States.
To set the frame of reference for the scope of the segment, independent hotels account for 42.7 percent of the hotel properties in the STR United States hotel census and 31.2 percent of room supply. The aggregate of independent properties has trailed branded hotels in absolute key performance metrics for the total United States during the past 15 years. More specifically, branded hotels have outpaced independents in monthly room rate and occupancy by an average of 3.2 percent and 4.1 percent, respectively. The real story in the numbers, however, is in the raw data behind the performance metrics – supply and demand.
The independent hotel segment has experienced low supply growth during the past 15 years compared to branded hotels. The 12-month moving average for year-over-year room supply growth for branded hotels remained in the 3- to 6-percent range through the mid-1990s and into the early 2000s. Although the growth slowed after the 2001 recession, supply growth has started to climb again, with the 12-month moving average registering 3.4 percent in February of 2009.
On the other hand, the independent hotel segment has shown a different trend with the 12-month moving average of room-supply growth rate registering 1 percent or less for most of the previous 15 years. Starting in mid-2005, the 12-month moving average of room supply growth rate for the independent segment was negative for 23 consecutive months. However, like branded hotels, the 12-month moving average of room supply for independent hotels has grown steadily during the past year and registered 1.8 percent in February 2009.
In addition to the divergence in supply growth rates between independent and branded hotels, demand growth rates also have shown significant variances throughout the past 15 years. While the historical demand growth rate of independent and branded hotels has been similar directionally, branded hotels have experienced a higher rate of growth than independents. The demand growth advantage for branded hotels was more prominent in the mid- to late 1990s, as branded hotel demand growth outpaced independents by 4 percent to 5 percent. However, following the 2001 recession and recovery, the demand growth for chain hotels has outpaced independent hotels by only 1 percent to 2 percent.
While STR data shows the aggregate of independent hotels are outperformed by branded properties, there are instances, on a regional or local level, where the opposite is true. Additionally, independent hotel networks now offer many of the same operational and technological tools as their branded counterparts. As a result, independent hotels will remain a viable option for developers, especially those looking for flexibility and greater control over their project.