Small is big

Small is big

Total Property - Issue 4 2019

High occupancy, revenue growth and profit margins over the past five years have pushed boutique hotels to the forefront of the global hotel sector, fuelled by travellers seeking alternatives to the traditional big hotel chains offering homogenised accommodation.

The number of boutique hotels in the US grew by 7 percent in 2012, and by 2017 that had lifted to 11.5 percent compared with a rise of just 1.8 percent for all American hotels. Between 2015 and 2017, bookings rose by 43 percent and in 2015 boutique hotels generated room revenues of US$13.7 billion.

Boutique hotels now make up 10 percent of all new rooms in Australia, up from below 3 percent six years ago.

New Zealand is following a similar trajectory, says Paul Dixon, director of tourism, leisure, hospitality and business sales at Bayleys Real Estate.

“More boutique hotels will be built in New Zealand. It is a niche that people are looking hard at and it can be a fun thing to get into for the right personalities. Where there is demand, supply will be created.”

The term boutique hotel was first used in the US and the UK in the 1980s to describe small but trendy, luxurious properties with 10 to 100 rooms. Many became highly-successful cult hotels.

Generally based on a theme, they are now synonymous with lifestyle, design, cool spaces, individuality and experiences.

Generally not belonging to major chains in New Zealand, owners have more freedom to innovate, localise and personalise guests’ experience.

That freedom has attracted New Zealand-owned and operated Scenic Hotel Group to the boutique segment. It already has the five-star Te Waonui Forest Retreat at Franz Josef and is spending $22 million refurbishing the Scenic Hotel on Auckland’s Queen Street into a niche, boutique hotel.

Taylor says it is essential a boutique hotel has a strong personality, is quirky, rich in local flavour, and they often focus on food and drinks. “Travellers want experiences in the surrounding area and not a bland hotel room.”

Capstone Hotels managing director Clare Davies doesn’t worry about the value of the hotels her company manages, but lifting guest numbers for a higher room rate, turnover and a decent return on investment.

Davies started Capstone Hotels in 2014 with one small lodge under management. Five years later she has 18 mostly independent hotels and lodges on her books, from Marlborough to Karioitahi Beach on South Auckland’s west coast.

They are generally smaller properties with a strong regional focus. Capital is being reinvested into refurbishment or expansion of some.

More rooms have been developed at Waitakere Estate. The secluded Awaroa Lodge, in Abel Tasman National Park, is refurbishing and Castaways Resort at Waiuku has undergone a refurbishment of its restaurant and soon to its rooms.

“It’s notoriously difficult to make a hotel development stack up, and refurbishment is also expensive but needed to stay relevant in the boutique hotel market,” says Davies.

Davies believes boutique hotels will keep growing as long as they are unique and individual, and have a strong story line that attracts travellers seeking original experiences.

Bayleys’ Paul Dixon says there are few boutique hotels for sale as most have been making good returns, but there has been a surge in new rooms being built.

“The biggest road block to any new hotel development is the imbalance between construction costs and the value of the development,” Dixon says.

“At $5,500 to $6,000/sqm for a fully fitted-out hotel room, it’s not cheap by any stretch of the imagination, particularly when boutique hotels across the Tasman are about a third cheaper to erect.”

Globally, the average room size is about 27 square metres but it can be 13 square metres in some boutique establishments.

Boutique hotels probably need more gross floor area per room than the bigger chain hotels, says Dixon. “But does that mean hoteliers need more overall building area and land? It depends on how big they want to build.”

Discovering a differentiator or theme is often the biggest challenge. “Whether it’s the rooms' theme, sea view, the building's history or a cool urban location – it’s essential it is different to surrounding hotels.”

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