The midscale hotel market is undergoing significant transformation and thriving in this dynamic landscape requires adaptation. But how exactly should stakeholders in midscale hotels ensure they remain abreast of the evolution?
Rethink
One strategy, Marriott SVP & global brand leader for select service Diana Plaza Trowbridge says, is a rethink of amenities and service offerings. As consumer preferences continue to shift, midscale hotels must adapt by offering amenities that balance guest expectations with operational efficiency.
“The customer is always going to want a lot more features and benefits but it’s about ensuring that we’re balancing guest demands with the owner’s proposition," she says, highlighting the delicate balance between meeting customer expectations and maintaining cost-effective operations.
For Michael Burnoff, senior vice president of acquisitions at Peachtree Group, the success of midscale hotel investments hinges on aligning financial viability with consumer demand. He emphasizes the importance of thorough market analysis and a keen understanding of the operating model.
“The biggest challenge that we have today on the equity side is bringing workable and attractive financing to the table. So ultimately the numbers have to make sense - it is focusing on the revenue and on the profitability of the asset.”
“Pre-pandemic, one of the biggest headwinds in our industry was the general cost of labour. With a midscale product, you can make that operating model a little bit more efficient. The midscale tier allows you to be a little bit more flexible with how you operate. Ultimately, you want to provide an excellent product for the consumer to make sure that they're going to return to the hotel.”
Technology
The integration of technology in midscale hotels is also crucial for enhancing the guest experience and improving operational efficiency.
“Being able to actually stream in your room has just become such a fundamental ask of that traveller where they actually want to watch their own shows and they don't want to be limited to whatever cable package is offered in the hotel,” Trowbridge says.
And Burnoff adds that technology not only improves the guest experience but also offers operational benefits, such as reducing staffing needs through innovations like mobile check-in and app-based services.
“You ultimately have to break it down to ROI – if you have smart TVs and strong Wi-Fi, that's stuff that shows up in TripAdvisor and in GSS scores. You get real return on that,” he says.
However, Brad LeBlanc ,senior vice president and chief development officer for BWH Hotels, highlights the challenges that come with these advancements, particularly the financial burden on hotel owners to upgrade infrastructure.
“The heartache comes from asking owners to input a commercial TV that allows for streaming because that's an investment on their side. And when you've got a thousand rooms, that's a very big investment. But with regards to the necessity of it, it's coming whether you like it or not.”
Exercise discipline
Burnoff also emphasizes the importance of maintaining disciplined operations in order to avoid margin erosion.
“Ultimately, the power in that model is operating it efficiently. You can't add on additional services and you can't add on additional head headcount, otherwise your margins get blown out. Really, it's very programmatic - you have to operate discipline.”
Extended stay has also emerged as a popular offering within the midscale segment, with many brands expanding their offerings to meet the growing demand. And that’s not set to diminish anytime soon.
“Extended stay accommodation is the next big thing, especially in the midscale segment. You see the proliferation of new brands coming in, you see it in the pipeline. It’s here to stay,” LeBlanc says.
However, he stresses that the sheer number of new extended stay options also brings the risk of market saturation, cautioning that care needs to be taken to avoid overbuilding.
Sustainability
Sustainability is another critical focus for the midscale segment as consumers and municipalities increasingly demand eco-friendly practices.
Burnoff notes that sustainability considerations are becoming more prominent in investment decisions.
“It's a big focus on the credit side. From an investment standpoint, we are finding there are certain municipalities and a handful of states across the country now that are mandating that you reduce your carbon footprint and energy consumption by as much as about 50 per cent. Otherwise, there are fairly significant penalties. From a consumer perspective, I think going forward in the future, it will also affect booking trends.”
LeBlanc acknowledges the challenges that come with implementing sustainable practices, particularly the financial burden on hotel owners. However, he agrees that sustainability is likely to impact consumer choices in the future, making it an essential consideration for the industry.
Looking ahead, the midscale hotel market presents both significant opportunities and potential risks, with Burnoff expressing optimism about the future of midscale hotels, citing the segment's resilience and strong lending market.
He also highlights the upcoming wave of property refreshes and renovations as both a challenge and an opportunity.
“From an opportunistic standpoint, we have been incredibly nimble in disruptive times over the years. We're very much focused both on the credit and the equity side on this wall of maturities that's coming forward over the next six to 24 months. Not just from a lending standpoint, but from a property level standpoint and from a renovation standpoint. Ultimately, it's incumbent upon the brand and owners to elevate products that are overdue a refresh, and some people are simply not in the best position for that.
Over the next 12 to 24 months, there will be potential opportunities in a perceived stressed market. The way that midscale has historically functioned in both good and bad debt markets, I think you have to be bullish,” he says.
LeBlanc shares a similar viewpoint, also emphasizing the importance of staying relevant in a rapidly changing market. He notes that while midscale hotels have long been a staple of the industry, the risk lies in becoming outdated as new brands and concepts emerge.
“20 years ago, we developed to a prototype. But the market is past that and is so different today. There are groups that demand certain things in particular markets. Midscale is here to stay. It'll be a $30 billion segment by 2030. It's not going anywhere. The winners will be those that can bring something new and fresh.”
This surge in the midscale hotel market is driven by several key factors. For more useful insights, read Hotel Management's Midscale Market Special Report.