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Sector Spotlight Boutique Hotels

Sector Spotlight: Boutique Hotels

Boutique hotels have risen dramatically in popularity in recent years

Boutique hotels have risen dramatically in popularity in recent years, as consumers are increasingly seeking something outside of cookie-cutter chain hotels when planning their trips for business or pleasure.

The dream of designing a trendy boutique hotel catering to the wealthy and discerning, and loaded with amenities has tremendous appeal. But there are significant realities that could affect that dream, and they must be considered by a wise owner or investor.

Location

As with any real estate investment, location is of prime importance.  

In the case of starting a boutique hotel, the matter of location involves not just generally being in an area where your target customers are likely to be, but also fitting your design aesthetic and concept into the local surroundings.

For example, downtown and midtown Manhattan have long been a popular location for successful boutique hotels.  However, a rustic cabin-in-the-woods concept with stripped down technology and a focus on solitude and serenity is unlikely to do well in the city that never sleeps.

Financing

Whether you are considering a brand new construction, a remodel of an existing non-hospitality location, or a purchase and remodel of an existing hotel, significant expense will be involved.  

As you plan things out, consider all of the factors that will affect the overall startup expense and operating costs as the hotel gets off the ground:

  • Lease/purchase price
  • Construction/remodeling costs
  • Permits/licensing
  • Furnishings/decor
  • Marketing/advertising (especially important prior to and during grand opening and first year.)

In addition, if your boutique concept includes special services and amenities (which most boutique guests expect,) additional costs will be associated with all of the following:

  • Food service (no different from starting a restaurant in addition to the hotel)
  • Bar/lounge
  • Spa/massage
  • Concierge services

The amount and diversity of amenities and services you will offer your guests can only be limited by your imagination and, of course, your wallet.  Your investors may agree that your spectacular ideas are interesting and fun, but if you can't convince them that they will also be profitable, they are unlikely to fund the additional expense.

Profit Turnaround

In direct relation to funding is a realistic view of how quickly your new boutique hotel will be able to turn a profit.

If you are purchasing an existing hotel and it can remain functional as you remodel to suit your concept, you will at least have some positive cash flow immediately.  However, if you are considering a new construction or a major remodel that precludes doing business from the start, there may be months or even years between when financing is raised and when you begin to see a return on the investment.

As you consider your options in the planning stages, be sure that the financing you obtain, and/or your personal financial situation allows for expenses to be covered during that entire period.

Competition

Even the most exotic, unique, or trendy boutique concept will suffer and eventually fail if not positioned effectively against its competition.

If you are entering an urban area that has already attracted a large number of boutique hotels that are doing well, and it shows evidence of being able to support another location, explore the local competition and see what they are doing that is contributing to their success.

What do their guests expect of them?  At what cost?  What makes your hotel different?  What makes it better?

Unless you can answer all those questions satisfactorily, you'll find it difficult to compete with the established players in the area.  Your choices at that point are to locate yourself in a different area where competition is not as close, or adjust one or more aspects of your business plan so you can be sure to answer those important questions before you undertake the startup.

This just underlines the overall point being made here: Starting a boutique hotel can be an incredible adventure, and a fulfilling dream come true.  But keen planning and a realistic outlook are the keys to making it a success.

Boutique Bits

  • The global hotel industry generated approximately $457 billion in 2011, with 1/3 of that total coming from hotels within the United States.
  • Nearly 5 million rooms are available for occupancy every day in the United States.
  • 1/3 of the U.S. hotel market is made up of privately owned or independent locations, including boutique hotels.
  • On average, about 63% of available rooms are occupied daily across the country.
  • The average daily rate for these rooms was $106.15 in 2012.

 



Bruce Hakutizwi

About the author

Bruce manages U.S. and international accounts for BusinessesForSale.com, the world’s largest online marketplace for buying and selling small and medium size businesses. Bruce has over 7 years’ experience working within the US business transfer marketplace connecting buyers and sellers.

@BizForSaleUS

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