Thanks to rapid developments in technology, stayed average daily rate (ADR) has changed for branded and independent hotels. Whereas international brands historically had the advantage of strength in numbers, brand recognition and large marketing budgets, independents have made serious inroads into global markets, tapping into expanding customer appeal for unique experiences.
Today’s technology provides flexible solutions for independent hotel owners to leverage, from e-commerce and marketing to revenue management and consumer insight tools.
So what does all this mean for the travel industry today, particularly for owners and investors when they look for new ventures?
What’s clear is that you can’t take for granted that by branding your hotel with an international flag, you’re always going to get a certain level of ADR premium. This has historically been one of the key rationale for choosing an international brand. Ultimately, it depends widely on the market supply-and-demand dynamics of wherever you are planning to put your next property.
We’ve done some research in four key cities looking at Booking.com data – London, Paris, New York and Cape Town – to see how relative stayed ADR compared within the categories of three and four-star properties in 2016 and 2017, and the results are varied. Within these categories we’ve compared three segments: global chains; home-like properties which includes apartments, holiday rentals, and other unique places to stay; and everything that doesn’t fall into the other two categories - local and independent. This final segment includes truly independently branded properties as well as smaller regional, national and local chains. The Booking local and independent segment performance is the benchmark against which the two other segments are indexed.
A varied picture
Across the four markets, we can see how differently demand behaves in relation to supply. What we see in London is that global chains and holiday rental properties have traded at similar ADR premiums relative to the local and independent segment. They’re both hovering around the 20% to 25% premium mark, with the holiday rental segment displaying a bit more volatility, much of it coming from seasonality.
In Paris, there is quite a different picture. Global chains and local and independent are pretty much trading right on top of each other in stayed ADR performance. Holiday rentals, on the other hand, was trading at quite a healthy premium until the spring of 2017. At this point, it started to merge with the other two, apart from a rise in the month of August – one of the city’s peak months for foreign tourists.
In New York, there’s yet a different situation. Holiday rentals have commanded a clear ADR premium relative to both global chains and local and independent. There’s an even greater surge during the summer peak season, where it jumps above 30%.
Finally we look at Cape Town, where the picture is anything but clear. Global chains, which notably are not as prevalent in this market relative to the other three markets analysed, and holiday rentals seem to be exchanging peaks and troughs with each other practically every few months. During the Christmas and New Year period straddling the end of 2016 and beginning of 2017, for example, Holiday rentals meaningfully surpasses global chains’ relative ADR performance, with a 15% premium over local and independent, which reverses over the following few months.
Other things to consider
So what else can investors take away from all this? Bear in mind that if you choose an international brand, you will need to take into account the costs and investment required to make your hotel brand compliant with all the required physical and operational standards. Will this investment give you suitable returns taking into account the potential ADR premium and also possible increased occupancy once you’ve factored in all the costs - upfront and ongoing?
On the flip side, investors taking the independent route face a different set of challenges, which often require much more hands-on involvement in the business. However, there is evidence throughout the world that hoteliers are opting to take on these challenges in exchange for greater freedom to deliver to guests more of a local and personalised experience – focusing on everything from cuisine to hotel design.
- Technology has made it easier for independent properties to compete with global chains
- In London, there is very little difference in the stayed ADR premium enjoyed by global chains and holiday rental properties
- The prime tourist month of August in London shows a sharp rise in bookings for holiday rental properties