Square Feet: Why Boutique Hotels Are So Big in Not-So-Big Cities

Square Feet: Why Boutique Hotels Are So Big in Not-So-Big Cities

- in Real Estate

Expanding beyond large areas like New York and Los Angeles largely comes down to cost. In New York, for instance, construction and labor costs have outstripped increases in room rates, making it difficult to generate attractive returns on investment.

Building a luxury hotel in New York costs about $1.5 million per room, Mr. Hanson said, compared with just $500,000 in many smaller cities.

“Costs have increased dramatically in gateway markets, and many brands need to continue growing, so they are looking outside the typical cities,” Mr. Hanson said.

Many companies like what they see in smaller cities. Downtowns like Manchester, N.H., and Youngstown, Ohio, are being revitalized as young adults seek out more urban lifestyles, tech hubs pop up and companies relocate there.

A room in Unscripted Durham. Of all hotel rooms currently under construction in the United States, about a quarter are in boutique hotels.

Kate Medley for The New York Times

Websites like Trip Advisor also make it easier for boutique hotels to find and market their rooms to guests. Their reviews and photographs give guests greater comfort in booking these boutique properties, according to Aran Ryan, the director of lodging analytics at Tourism Economics.

“There is also more value in staying at boutique hotels than before, since guests can post their distinctive experiences on Instagram or Facebook,” he said.

Marriott, one of the country’s largest hotel chains, is introducing numerous boutique hotels under its Autograph Collection. Known as soft brands, these boutique hotels have access to Marriott’s booking service and loyalty program, but retain their own identity rather than becoming full franchises. The locations include the Empire Hotel in Birmingham, Ala. and the Elizabeth Hotel in Fort Collins, Colo. The company also has a brand of boutique hotels known as Edition Hotels.

Hilton, which is pursuing the same strategy with Curio, counts among its properties the Asheville Foundry Inn in Asheville, N.C., and the Hoodoo Moab in Moab, Utah.

Across the street from Unscripted Durham is another boutique hotel, the 21c Museum Hotel. Ms. Hills says demand is strong enough to support them both.

Kate Medley for The New York Times

With so many new rooms, there are some concerns about oversupply. For instance, the growth in a common industry metric, revenue per available room, is expected to slow this year. After rising 3.2 percent last year, it is expected to grow 2.2 percent this year, according to Mr. Ryan.

The new level of competition is playing out in Durham. Across the street from the Unscripted Durham is another boutique hotel, 21c Museum Hotel, which has historic architecture and a rotating collection of artwork on display.

Ms. Hills, whose company Austin Lawrence Partners is Unscripted Durham’s developer, insists that the two properties are distinct and that there is sufficient demand in the city to sustain them both.

Demand in the city, with more than 252,000 people, rose 5.3 percent in 2016, almost matching the increase in rooms.

The Dream Hotel Group hopes Unscripted Durham will be the first in a string of Unscripted hotels. A second property is scheduled to open in Flower Mound, Tex., in 2019, and discussions are underway for other locations including Phoenix; Austin, Tex.; and Long Island City, Queens.

With Unscripted Durham, Austin Lawrence Partners is the developer and managing general partner and will pay the Dream Hotel Group a fee to manage it

“It used to be that boutique hotels worked in the coastal cities like New York, but now the center of the country is also looking toward this lifestyle,” said Jay Stein, the chief executive of the Dream Hotel Group. “We are excited to become part of that.”

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