There are more than 200 select service hotel brands operating in the US, with 10 new brands launched since the pandemic, according to JLL research.
The demand for select service hotels in the US is expected to reach a milestone of one billion room nights this year, which surpasses the 22-year average by 18 per cent, said Katen Patel, managing director, JLL.
Select service room supply has increased by 190 per cent since 1988, compared to a 130 per cent increase for full-service room supply.
Currently, with high construction costs and lending restraints, there has been a slowdown in new-build development and more appetite from brands to consider conversions and other partnerships, said Patel.
Cost efficiency and speed-to-market are behind the emergence of select service brands that focus solely on conversions: Sonesta’s Signature Inn; Spark by Hilton; Marriott’s Project Mid-T; Choice’s Park Inn by Radisson relaunch; and IHG’s Garner.
This trend is driven by the need to drive net unit growth (NUG), a key measure of shareholder value.
“From an investment sales standpoint, select service is also the most liquid segment, especially in this challenging environment. At JLL today, a lot of our transactions are select service, and buyer demand for this product type continues to be strong and grow,” Patel added.
With such a wide choice of select service brands, how do owners and investors choose one brand over another?
Brian Quinn, chief development officer, Sonesta Hotels, said: “Brand standards are rooted in guest need, but there’s got to be margin for the owner and the brands that are successful marry those two things up. All of us have quality assurance and property improvement plans (PIP) and different ways to encourage and please the owner.”
Davonne Reaves, founder of The Vonne Group and crowdfunding platform Vesterr, is the owner of three hotels: two Hiltons and an IHG property. She said: “As an owner, I consider how I will be treated as a franchisee in both the acquisition and development phases. This is a relationship-driven business, and I take that into account. Fees are always a consideration. In a competitive market with many brands vying for the same space, I need to know what will make my project successful, so I look at factors like reservation systems and SEO.”
She added: “I want to expand my portfolio with more hotels, so the initial treatment during acquisition is important. If I’m treated fairly from the start, it sets a positive tone for future development or conversion projects.”
Alissa Klees, VP brand leader at Spark by Hilton, emphasised the importance of the total investment model. “When we developed Spark, it was crucial to consider the conversion model and how much an owner would invest to join the Hilton system. We differentiate ourselves through our partnership with Hilton Supply Management, which delivers full FFE in 10 to 12 weeks. This speed to market is a real differentiator and has helped us accelerate the pipeline for the brand. We have over 200 deals in the pipeline and will open over a hundred Sparks this year. So, it is fast moving and a lot of that is down to how we thought about this conversion package.”
Ben Cary, vice president of development at Accor, highlighted the value enhancements and return on investment levers that Accor offers. He said: “One significant advantage we provide is our relationship with online travel agencies. Independent hotel owners often face high commission rates from these agencies, sometimes over 20%. We have negotiated rates that offer substantial savings and a significant return on investment.”
Brian Quinn of Sonesta Hotels added: “We continue to look for ways to add value for franchisees. Being fast, flexible, and friendly is critical. It’s tough to get a deal right now with tight lending and supply chain issues. Anytime we can simplify the process, it adds value. Our parent company has invested $6 billion alongside our franchisees, demonstrating our commitment.”
Cary said that last year, Accor decided to expand its select service and limited service brands in the US, dedicating resources to PR, sales, and marketing, supported by an executive team. In June 2024, Accor opened Hotel Stratford in San Francisco in June 2024, a conversion of a hotel originally built in 1910.
Hotel Stratford is part of Accor’s Handwritten Collection, a portfolio primarily consisting of conversions of existing independent hotels.
Klees added: “We identify markets where Hilton doesn't have a footprint today. With a company as big as Hilton, it might surprise you that there are over 700 markets that we identified where there is an opportunity for us to enter.”
All quotes taken from the ‘Limited service – differentiating in a time of brand proliferation’ panel at IHIF Americas 2024