Nightclub Hotels

By Richard Mandigo

August 02, 2010 1:45 PM

According to the latest J.D. Power and Associates rankings, the new hotel chains to look out for are the aloft and the Indigo, which represent a similar style and a similar departure from traditional hotel chains.

These two hotels feature modern, edgy style that attempt to market to a younger demographic. Hotel brands are once again in a period of growing pains, trying to appeal to gen-Y as they become part of the consumer base.

The brands to a certain extent are taking their cues from boutique and lifestyle hotels around the country but particularly in New York City. Unfortunately, nobody has satisfactorily given a concrete definition of what these terms mean. I’ll just throw out some definitions to make it easy. Boutique hotels came first, and are generally smaller upper upscale or greater hotels, which offer a high level of amenities and services. Lifestyle hotels followed, can be thought of in much the same way, but specialize further, focusing on spa services or more frequently, nightlife. Essentially, it’s the same as a boutique, but it's trying to appeal, or give the appearance of appealing to a younger generation.

Surprisingly, hotel brands have already learned some important lessons from lifestyle hotels. If you look at new construction or brand renovation standards, it would look similar to a boutique hotel. Hotels today use more interesting furniture and bolder colors. They’ve already integrated most of the latest technology into their rooms. The average new or renovated hotel no longer looks like someone’s grandma designed it.

The term I like to use for what came next is “Nightclub” hotels. As mainstream hotels adopted many of the things that made boutique properties special, new hotel concepts were pushed further to the extreme. These hotels have been the norm for the last decade in Vegas, and started showing up in New York a little afterwards. A nightclub is built to be on the bleeding edge of what’s cool right now, typically at a high cost, and it lives or dies by the buzz it generates, moreso than a bar or coffee shop, which rely on a steady stream of regulars. When a nightclub opens, it basically already has an expiration date. A typical hotel is built for over 20 years. Even though they all serve drinks, a nightclub has to constantly re-invent itself to stay on top of the trends, which means in hotel terms, that lifestyle hotels have a much shorter shelf life than a traditional hotel. Their renovations have to be more frequent and likely more expensive or they will lose buzz which is their lifeblood, which is frequently lost when the next hotel like it opens anyway.

This works in New York City, because hotels run at much higher occupancies year round and they can afford the extra supply. Elsewhere? That remains to be seen. While they’ve been successful in Miami, the market has been strained recently. The Chicago market can reasonably only support a few such hotels compared to New York.

A few lifestyle hotels in a market represent an alternative to traditional properties and capture guests from a theoretically untapped market. The target demo for these hotels is young. In most cases outside of New York, it remains to be seen how deep the pool is. (Anecdotally, most of the working 20-somethings I know stay at business hotels.)

This places these hotels in a bit of a niche. However, the real boon for these hotels is that, like a nightclub, while they’re built to attract the young-and-hip, they also attract people who wish-they-were-young-and-hip. People in their mid 30’s or older, who can afford to spend more at a hotel while they’re on the road for the experience.

The question is, are lifestyle hotels the next short-term trend like condo hotels were before them? In the sense that they’re mostly a buzzword that developers throw around trying to finance their hotels, yes. Like condo hotels, they don’t work as well in reality as they do in New York.

Overall, though, they’re here to stay as an alternative to the traditional hotel. And like all alternative-culture movements, if too many people start doing it, the magic will be lost. When one lifestyle hotel opens, it takes business away from say, a Courtyard by Marriott. When a second one opens, it takes business away from the first, and both need to compete to induce demand from traditional sources. When they reach critical mass, they’re more likely to cannibalize each other than they are other hotels, or just give up the edgy image and become a normal hotel.

To an extent, it should be a somewhat self-correcting trend, because when the first rounds of major renovations are needed, we’ll see how dedicated these hotels are to staying on top of the trends if it means a higher cost.

Aloft and Indigo are essentially lifestyle-lite. To the extent that they have succeeded, they’ve done so because they’re edgy, but underneath it, they’re basically normal brands. The rooms aren’t very different aside from the paint color and the look of the furniture. They’re a bit more expensive to build than a traditional hotel, and the rooms rent out for slightly less, but these variances aren’t huge and some of the lower rate can be chalked up to traditional ramp-up discounting.

When the Hyatt Place concept launched, a lot of complaints from owners and guests revolved around the coffee bar concept, which was seen as out of place and a bit of a hassle. We’ll see the same thing about the pool tables, lounges and other design choices Aloft hotels have made. Ultimately, the pool table isn’t really there for people to play pool on, it’s there because it’s part of the image of the hotel.

Ted Mandigo, CPA, ISHC.
Director TR Mandigo & Co.

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TR Mandigo & Company is a Hospitality Consulting firm with over 35 years of professional experience. We specialize in hotel & resort market feasibility, litigation support, and portfolio valuation.

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