Room Service

Hotels hatch new brands to grab market share

The city’s diverse population of downtown hotels will welcome a new player early next year as an Aloft Hotel opens in a revamped former office building on Baronne Street. The Aloft brand, owned by Starwood Hotels & Resorts Worldwide Inc., is among a string of fledgling hotel brands that bill themselves as technology-centric “lifestyle” inns catering to travelers in their 20s and 30s.

New Orleans’ latest player in this “millennial” marketing segment is the new AC Hotel, a “fashion-conscious” brand founded in Spain by Antonio Catalán and brought under the wing of Marriott International Inc. through a joint venture in 2011. When the AC opened last month at the site of the former Cotton Exchange Hotel on Carondelet Street, it became the first AC Hotel to operate outside of Europe.

The AC and Aloft hotels, which are located a block apart in the Central Business District, likely are the first in a series of stylish new hotel brands that will take up residence in New Orleans during the next few years, drawn not only by the city’s inherent charms but also by its profit potential.

“These brands are coming in part because New Orleans has a European feel and is a good place to open, but they’re also coming because it’s such a strong market,” says hotel industry analyst Adam Lair, managing director at HVS Consulting and Valuation Services in New Orleans.

Data from travel industry analysts at Tennessee-based Smith Travel Research show that occupancies in New Orleans-area hotels averaged almost 70 percent through the third quarter of this year, with averages at some downtown inns running substantially higher.

Average daily room rates in New Orleans topped $143. Not only was that 24 percent above the average for hotels across the country, it was also well above rates in such cities as Atlanta, Orlando and Nashville, where average prices ranged from $92 to $115 per night.

Even more important than these numbers is the figure representing revenue per available room. Considered by hotel owners as the most crucial indicator of performance, this figure hit an average just below $100 in New Orleans, a whopping 30 percent higher than the comparable figure for the nation at large.

Lair says these indicators are all the more impressive given that local hotels hit these levels in the year following one that contained major visitor events. New Orleans hosted a Super Bowl early in 2013, and generally local hotels might have expected that business would soften this year. Instead, revenue growth through the first nine months of ’14 nearly equaled the growth for all of last year.

Lair points to several reasons. One is that the local supply of hotel rooms has grown slowly. Available land for building new hotels is scarce in New Orleans, and when developers do find spaces, they often face hurdles in the form of stiff zoning requirements.

In addition, the local inventory of older buildings that might be converted into hotels is thinning. Many builders in the past have latched onto downtown buildings that are classified as “historic” so that they could benefit from generous tax credits that accrue to historic properties adapted for new uses. Those projects have taken many such buildings off the market.

While these factors have dampened supply growth, demand for hotel rooms has continued to pick up. Lair says one reason has to do with a basic change in the visitor profile.

The local visitor market has long derived its primary strength from the convention business, and leisure travelers – or tourists – generally have been seen as a less powerful component of the market.

But the city’s rising popularity as a visitor destination during the past several years is bringing more leisure travelers to New Orleans. “A bigger portion of demand is coming from transients, or leisure travelers, so the city has a better base to build off of than it used to,” Lair says.

He believes the increasing strength of the tourist trade coupled with continued health in the convention sector is bringing the New Orleans visitor market a stability it has not had before.

“We really don’t have any major events this year, or a particularly strong convention schedule, but we’re still seeing growth in (hotel revenue),” he says.

The performance of local hotels helps explain why the city is beginning to see new brands popping up. Hotel giants like Marriott, Hilton and Starwood – all of which own multiple brands – want to grow here but don’t want to compete with themselves by putting the same names across a street from one another. So, in cities around the country, they are attempting to carve new market niches using new brand names.

Along with AC Hotels by Marriott, and Starwood’s Aloft Hotels, for instance, Hilton recently launched its own millennial-leaning brand called Canopy, billed as an “energizing new hotel” offering a personal lifestyle experience.

With an AC Hotel already operating in the CBD and an Aloft Hotel soon to follow, the chances are probably good that a Canopy isn’t far behind.

 

 

Rooms By Brand Family
The New Orleans area is home to nearly 38,000 hotel rooms spread across hundreds of inns that wear the flags of many different hotel companies. This list shows the hotel companies that operate 1,000 or more rooms in the city.

Company                                                      No. of rooms
Independent companies…………………………8,338
Hilton…………………………………………………..5,843
Marriott………………………………………………..5,342
IHG……………………………………………………..3,481
Wyndham…………………………………………….2,905
Choice…………………………………………………2,782
Starwood…………………………………………….2,641
Hyatt…………………………………………………..1,617
La Quinta…………………………………………….1,122

Source: HVS Consulting and Valuation Services, New Orleans