In the US, 72% of hotels are branded. Ever since Kemmons Wilson opened his first Holiday Inn in Memphis, Tennessee, in 1952, the makeup of the hospitality industry has become more branded.
This trend is hardly surprising as standardized hotel products are popular with guests and owners alike. Equally important, over the years, a branded hotel’s performance could easily be tracked and then used by lenders to draw more properties of the same type, allowing for an easier way to model future results.
Additionally, loyalty programs that give owners and operators access to a strong customer base make brand affiliations attractive despite the costs involved. As large companies try to bring new experiences to their customers, brands have proliferated. CoStar’s hospitality analytics company STR currently has 278 brands with hotels in the United States
The trend towards branded hotels can also be observed in the last 12 months of hotel openings. Despite the pandemic, more than 100,000 rooms were opened in the twelve month period ending February. Of these rooms, 94% were linked to a chain and only 6,800 rooms were opened in independent hotels.
The pipeline of the rooms under construction paints a similar picture. By February, 91% of the 190,000 hotel rooms built were part of a large franchise or owner group.
It is also noticeable that 80% of the rooms in the US pipeline are connected to only one in six parent companies. That rate has increased significantly over the past 10 years, and given the post-pandemic credit and operating environment, it is not unreasonable to assume another shift in developer funds towards brands in the US
The situation outside of the USA is significantly different: the relationship between branded hotels and independent hotels is reversed. In other countries, only around a third of the hotels are branded. As Airbnb has shown, consumers will choose non-standard accommodations when the booking process is simple and guests and hosts can communicate effectively when something goes wrong.
A second force that levels the playing field between branded and non-branded real estate is the steady improvement in online search results, which makes consumers less reliant on the real estate and branded websites or distribution channels to find available spaces.
As the effects of the pandemic on the global hotel industry gradually weaken, it will be interesting to see if consumer buying behavior in the US changes. If so, owner and lender activity could be swayed, slowing ongoing brand proliferation.
Jan Friday is Senior Director of US Hospitality Analytics for STR.
