The data has spoken. In 2016, sweeping uptakes in occupancy, average daily rate (ADR), and revenue per available room (RevPAR) revealed that independent hotel properties outperformed their branded brethren. Now, we find ourselves at the point in the lodging cycle where the non-branded universe is showing stronger growth rates than the chains. This is excellent news for investors and owners of non-branded hotels.
To put this into context, brands and chains dominate the U.S. hotel industry. Of all available rooms, approximately two-thirds are chain-affiliated. The remaining third (more than 1.5 million rooms) are independently owned and operated. Growth rates for independent hotel supply increases were only 0.2 percent, compared to the total U.S. supply growth rate of 1.6 percent. Clearly, branded hotels continue to be more attractive to developers.
That said, in 2016, independent hotels showed an occupancy growth of 0.8 percent, ADR increases of 3.8 percent, and a RevPAR acceleration of 4.6 percent.
Absolute ADR for chain hotels was $124.27. For independent hotels, it was $123.22. The recent price increases for non-branded hotels have allowed independent hoteliers to charge roughly the same as a branded hotel while enjoying a very different cost structure.
But it isn’t all equal. Branded hotels reported 66.8 percent occupancy, while independent hotels showed occupancy of only 62.3 percent. This likely points to consumer preference and the impact of the hefty marketing dollars being spent by the brands. Independent hotel RevPAR grew by 4.6 percent (actual RevPAR: $76.75), while branded hotels grew by only 2.6 percent (actual RevPAR: $83.07).
So, while ADRs are equal and occupancy is slightly higher for brands, independent properties outperform their brand-affiliated counterparts when it comes to growth rates. The same is true during a downturn. For example, in 2009, branded hotels experienced a RevPAR decline of 16.4 percent, but independent hotels were hit harder with a 17.4 percent RevPAR decline. The current strong growth rates for independent hotels are a reflection of the current part of the lodging cycle; it is not uncommon for independent hotels to report strong growth rates because branded occupancies are so high that it is difficult to achieve further growth.
Investors and owners should continue to be intrigued by the potential that independent hotels hold given the continued positive outlook for the U.S. hotel industry.
About the Authors
Callie Johnson is marketing content coordinator at STR. Jan Freitag is senior vice president of STR.