Hotels have an amazing capacity to be invisible. This is quite the talent, given that they tend to be quite large buildings, which, when fully occupied, are pretty well lit with all those people not fretting about their electricity bills and keeping the lights blazing in their rooms. But because the local population doesn’t use them, they don’t stick in the mind like the butcher, the baker, or the framer you’re convinced is a money laundering front.
This confusion around how many hotels there are has led to some issues around what is happening to room stock during the current conversion frenzy. And frenzy it is. In the recent results season, Marriott International reported that conversions represented nearly 20% of room signings and 27% of room additions in 2022. At Hilton conversions accounted for 24% of gross openings for the year. For IHG conversions rose from 17% of signings back in 2016 to 23% in 2022.
So ‘frenzy’ is an acceptable description. But there was a suspicion that these hotels were just part of a merry go round, hoping from brand to brand and changing nothing about the sector. That the operators were just feasting on each other and the only winners were the people who make neon logos.
Pat Pacious, president & CEO, Choice Hotels Group, was eager to comment that when the group loses hotels, it’s not to other companies, thank you very much. One enterprising analyst asked where hotels were going, commenting: “I know there are a couple of companies out there looking at or launching economy and midscale brands”, which can really only have meant Hilton and conversion-only brand Spark.
Pacious bit his tongue well, responding that “for the most part, they go independent. These may be owners that have a 40-year-old hotel where the mortgage is paid off, they don’t care if they operate at a 70% revpar index. So what they’re looking at is, are the fees associated with being part of a larger system worth it for them? And when they choose not to do that, they generally go independent.”
He added: “There’s also been a trend that some of these hotels are going to alternative use. There are specific states in the US that are paying for economy hotels to turn them into housing*. But by and large, these are hotel owners that just don’t want to associate with the brand anymore, given the expected returns they want and ultimately what they’re hoping to do with their asset in the long term.”
This is not to imply that Choice is the last chance saloon before hotels drop off the map, although it might very well read that way. Just that when hotels need to be at the very peak of their game – when there are debts to be paid and maybe even a profile to be built – that hotel needs the help of a brand. If you’re not being pressured by the bank, maybe you don’t need a brand. But Choice at least appears to believe that a flag can help with the margins
And for all those busy in the frenzy? Development executives are eager to say the hotels are coming from the independent sector. Eyes tell us some are coming from other brands. Pacious’s comments tell us that, to be successful is to cut the time your brand is needed. Take close heed of your contract time.
*This has, unfortunately, made those hotels a lot more visible, most recently in the UK, where the far right has taken to gathering outside them to share their monstrous views and burn stuff down.
Image: Spark by Hilton. Most assuredly not a former Choice hotel.