Dual-Brand Hotel Market Overview
By J.Carter Allen Managing Director, HVS Houston | July 15, 2018
Just as the early 2000s realized the proliferation of the boutique hotel concept, the second decade of the new millennium will arguably be known for the growth of the dual-brand hotel concept. While the concept of dual-branded hotels is not new by any means, the pipeline for these projects has exploded in recent years. Originally, developers maximized the return to a site by developing two hotels, in two separate buildings. While this method allows for some management efficiencies and enables the property as a whole to capture a wider range of demand, it fails to achieve significant development cost efficiency. The model prevalent today is the development of two brands within a single building, thereby allowing the developer to build a denser product that maximizes the return to the land. This pairing of multiple brands within one building allows management to capture a greater range of demand, improving revenue potential while capitalizing on development and management cost efficiencies.
Factors Influencing Development
Many factors must be analyzed prior to developing an opinion as to the highest and best use of a particular site. Demand trends must be identified to determine the timing and use that best fits the site. The potential development of a dual-branded hotel, or multi-branded hotel for that matter, is simply an expansion of the highest-and-best-use analysis. A build-up analysis should be preformed to identify the primary market area. This analysis essentially quantifies the existing demand in a market by estimating occupancy and market segmentation for each hotel in the competitive set and results in a forecast of occupancy for each brand.
Dual-brand hotel developments are most prevalent when the size of the site allows for a hotel with a relatively large room count; however, the market demand analysis would not support a large hotel of a single brand. For example, the demand analysis may suggest that there is not enough demand in the market to support a 225-room select- or limited-service hotel but could support a 125-room select-service hotel and a 100-room limited-service, extended-stay hotel. The ability to build a denser product also delivers more value to the land, which is why dual-branded developments have become popular in urban areas and mixed-use developments where available land is limited.
Dual-branded hotels must work in concert with one another to maximize management's ability to capture demand and drive RevPAR. The pairing of the two brands is therefore of the upmost importance. The most popular pairings are of select-service and extended-stay hotels under one roof, enabling the developer to offer two different products while maintaining relatively similar chain scales and guest profiles. While this type of development is attractive to developers, and the synergies between the two somewhat comparable brands are significant, substantial design issues can still arise, as the respective amenities and brand identify of each product must be protected.
The Dual-Brand Relationship