Premium performance affects flow-through in boutiques
Premium performance affects flow-through in boutiques
14 JANUARY 2019 9:09 AM

An analysis of 2017 performance data shows the occupancy and ADR premiums boutique hotels have over the rest of the hotel industry.

REPORT FROM THE U.S.—While boutique hotels comprised just 3.2% of the total U.S. lodging supply in 2017, boutique projects represented 17.8% of the rooms in the development pipeline as of June 2018.

Boutique hotels are popular with developers for a variety of reasons:

  • They frequently offer unique, localized experiences that are favored by today’s travelers.
  • They give the developer an opportunity to be creative with the facilities and services offered.
  • They achieve premium levels of occupancy and average daily rate.

To gain a better understanding of the performance of this popular segment of the lodging industry, CBRE Hotels’ Americas Research partnered with the Boutique & Lifestyle Leaders Association to develop six competitive classification categories. The categories are based on a combination of branding, management and chain scale—three factors that influence the market position and performance of boutique and lifestyle hotels. The six competitive classification categories, along with representative brands, are listed below:

  • legacy brands/upper-priced: Andaz, Canopy, Indigo, Kimpton, W Hotel;
  • legacy brands/lower-priced: A/C, Aloft, Moxy, Tru;
  • soft brands: Autograph, Best Western Premier, Curio, Hyatt Unbound;
  • referral groups/independent properties: Historic Hotels, Leading Hotels, Small Luxury Hotels;
  • boutique-lifestyle brands/luxury: Belmond, Montage, Thompson, Valencia; and
  • boutique-lifestyle brands/upper-upscale: Affinia, Charlestowne, Joie De Vivre.

Using these six categories, CBRE publishes quarterly forecast reports that present three-year projections of occupancy, ADR and revenue per available room. Further, once a year the report provides revenue, expense and profit metrics that allow boutique owners and operators to benchmark the financial performance of their hotels.

As the budgets for 2019 performance are being finalized, we present the latest forecast and financial benchmarks from the September 2018 edition of “Trends and expectations for boutique and lifestyle hotels.”

Market performance

In 2017, the 1,281 properties in the U.S. designated by BLLA and CBRE as boutique and lifestyle hotels achieved an aggregated occupancy of 70.5%, and an ADR of $208.52. This represents a 6.9% occupancy premium, and a 64.7% ADR premium, compared to the performance of the overall U.S. lodging industry for the year. During 2017, hotels in the boutique-lifestyle brands/upper-upscale category achieved the greatest occupancy level (79.6%), while the boutique properties that are either non-branded, or members of a referral group earned the highest ADR ($253.14).

Through June 2018, the boutique segment appears to be maintaining its premium performance levels. Through the first six months of the year, RevPAR levels are up nearly 5% from the first half of 2017. Leading the RevPAR gains are the boutique properties in the legacy brands/lower-priced and boutique-lifestyle brands/luxury segments.

Looking toward 2019, all six categories are once again forecast to achieve gains in RevPAR. However, like the U.S. lodging industry as a whole, the pace of RevPAR growth will slow down. Boutique-lifestyle brands/luxury properties are projected to enjoy a RevPAR gain of 3.1% in 2019. RevPAR growth for the remaining five categories is expected to be less than 2%.

Financial performance
Because of the comparatively high levels of personal service and food-and-beverage offerings, boutique hotels do achieve relatively low profit margins compared to industrywide benchmarks. Using data from CBRE’s “Trends in the hotel industry” survey, properties that meet the BLLA/CBRE definition of a boutique hotel achieved an average gross operating profit (GOP) margin of 33.8% in 2017. This is less than the 38.3% average for all hotels in the “trends” sample.

The effect of the higher levels of labor and F&B can be seen in the total operated departmental expense ratios. On average, the boutique hotels in the “trends” sample averaged a total departmental expense ratio of 41% of total operating revenue. This is greater than the 37.5% average for the entire “trends” sample. Conversely, the average undistributed department expense ratio for boutique hotels (25.2%) is just slightly above the overall sample average of 24.3%.

As would be expected, GOP margins for boutique hotels are clearly influenced by the offering of F&B. Boutique hotels that have restaurants and lounges achieved a GOP margin of 33.3% in 2017. Concurrently, boutique properties that do not offer an F&B service averaged 47.1%. When analyzing GOP margins across the six competitive classification categories, we find an inverse correlation between the ratio of F&B revenue to total revenue and the GOP margin.

Investment in hospitality
For owners and developers, an investment in boutique and lifestyle hotels is an investment in hospitality. Historically, this segment has been at the forefront of new and creative facilities, services and amenities all aimed at providing a more personal level of service and a unique experience. Yes, this puts a strain on operating expenses, and therefore limits the flow-through to the bottom line. Fortunately, the premium occupancy and ADRs achieved by these hotels provide the opportunity to achieve profit levels that deliver the desired return on investment.

Robert Mandelbaum is the Director of Research Information Services for CBRE Hotels’ Americas Research. To forecast and benchmark the performance of your boutique hotel (existing or proposed) please visit, or call (855) 223-1200.

The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.

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