‘NEW LUXURY’ HOTELS

A NEW SET OF PRIORITIES

 STANDARD MIAMI

INTRODUCTION
W ith the well documented shift in luxury spending away from the acquisition of ‘things’ towards the collection of experiences, the travel
and hospitality sectors have become understandable benefactors. Hotel companies have responded to the nuanced demands of this wave of
experience-seekers which has seen ‘lifestyle hotel’ concepts shift into the mainstream.

At the top-end of the market, proliferation continues as the new expectations of some luxury consumers are left unsatisfied by the traditional
five-star proposition. These evolved guest priorities, often with little correlation to current star-rating systems, has resulted in a spate of ‘New
Luxury’ hotels seeking to fill the void.

Where effective, these hotels have successfully captured market share from the traditional luxury segment through considered market positioning
and the adoption of a range of property-specific, operating philosophies and core lifestyle elements.

In this paper, WATG Strategy highlight some of the key attributes demanded by ‘New Luxury’ hotel guests and profile a selection of pioneering
brands that are fast responding to this shift in consumer demand.

This piece was compiled by WATG Strategy. We offer clients market research-led pre-development
advice, programming and financial feasibility to help simplify the complexities of hospitality
development. We work seamlessly with our design studios to create award winning destinations
that maximise economic performance.
 ‘NEW LUXURY’ HOTELS
STREAMLINING FACILITIES & SERVICES
A number of pioneering brands are leading this re-definition of luxury
in the hotel space. The sample of brands that we see exemplifying this
trend typically operate just below full-service luxury, but with a targeted
offering that matches guest priorities.
The ‘New Luxury’ hotel guest is value conscious, but not necessarily
price sensitive. They are willing to pay for components within the hotel
experience that they consider integral. However, they are conscious of
wastage and unwilling to spend on elements for which they receive no
benefit. These preferences are increasingly pervasive and it is important
not to pigeon-hole guests by age or demographics.
In response, hoteliers are foregoing elements until recently considered
vital to the guest experience. Often eschewed are opulent lobbies, high
suite counts, oversized standard bedrooms, five-piece bathrooms and,
in some instances, even room service and laundry.
With considered amenities, efficient spaces and targeted service, this less
formal, more rebellious version of luxury has been proven to compete
with and, on occasion, outperform traditional luxury brands in terms of
RevPar.
CASE STUDY: PUBLIC
Ian Schrager’s PUBLIC opened in NYC in 2017, offering ‘luxury
for all’ with a price accessible concept that focussed on targeted
service (supported by technology), creative design and appealing
food and beverage concepts.
At launch, PUBLIC was positioned competitively within the
Manhattan market, offering a tariff of just US$150 per night.
Having captured the local zeitgeist through fun design, animated
food and beverage spaces and a calender of high-profile events,
the room rate was inflated two fold within the first year of
operation.
Amongst disciples, the higher rate is still considered value for
money. However, it is clear that the hotel is successfully punching
above its weight when considering its limited service offering and
19 sqm entry-level rooms.
PUBLIC NYC
PHYSICAL PRODUCT & AMENITIES
‘New Luxury’ travellers often seek out one-of-a-kind properties to satisfy
their exploratory and somewhat pioneering nature. As a result, each
property within the brand portfolio is typically distinctive, but ingrained
with an overriding operator philosophy.
Therefore, key counts, room sizes and suite mix can vary substantially
across a single portfolio. Even more variability and creativity can be seen
when it comes to food and beverage and supporting amenities.
However, experiential elements are increasingly featured, be it vibrant
mixed-use lobbies, rooftop pool decks, screening rooms, wellness hubs
or a creative array of eclectic dining and bar concepts.
Being unburdened by brand standards also opens up the potential to
convert interesting, often overlooked, urban spaces into hotel concepts.
The conversion of ‘quirky’ alternative-use
buildings can bring an instant character to the
hotel and narrative to the guest experience.
- GUY COOKE, WATG
CASE STUDY: PENDRY
Pendry is the new design-driven brand from the team behind
Montage. The concept focusses on quality service and cutting-
edge food and beverage concepts.
Pendry’s two operational hotels are full-service in nature. However,
the hotels’ rates sit below that of the Montage brand. This is
justified by a careful dilution of the luxury experience and a reduced
staff count offering a targeted service.
This lower rate positioning supports entry into secondary markets,
where they have found significant success, quickly becoming
established market leaders in terms of ADR.
PENDRY, SAN DIEGO
‘The typical guest profile at Pendry is
related to psychographics rather than
demographics. The hotels are designed for mid-
30 year olds but 25 to 55 is the core market. Guests
have been older than expected.’
- MICHAEL FUERSTMAN, CO-FOUNDER, PENDRY
COMMUNITY / LOCALISATION
Demand for hyper-localisation and authenticity is a common theme
within the hotel sector at present that seems to transcend typology,
brand positioning and geography.
For ‘New Luxury’ travellers, hyper-localisation is a pre-requisite.
Localisation of design is an effective way to differentiate product, make
unique statements and apply individual character within a portfolio.
1Hotels have taken this to the next level at their Brooklyn Bridge property,
utilising locally sourced, reclaimed construction materials with origins as
wide ranging as a disused factory and the adjacent botanical gardens.
The development of attractive, vibrant, public spaces within the hotel
that capture the imagination of the local community also helps to create
an authentic and localised experience for hotel guests, whilst at the
same time supporting food and beverage departmental revenues.
CASE STUDY: STANDARD HOTELS
The Standard Hotel group, although not a new brand, has
increasingly found favour amongst ‘New Luxury’ travellers. The
brand started life as an ‘affordable design hotel’ but quickly became
popular with trend-setters and celebrities.
The launch of the flagship property on the High-Line in NYC in
2009 cemented this. Each of the properties is unique but a common
thread is the strong connection the hotels have with the local
community. This is facilitated through the provision of extensive
food and beverage components, offering a number of different
experiences within a single property.
At the High-Line, the range of outlets ranging from the German
Beer Garden at street level to the renowned rooftop nightclub Le
Bain, as well as a carefully curated calendar of events, successfully
broadens appeal and encourages repeat visitation.
Through this approach, the hotels become ‘must-visit’ destinations
within their host cities with extensive secondary revenue streams
driven by non-resident spending.
STANDARD HIGH-LINE
‘We get conditioned to group these hotels
into a certain box, but increasingly they
do
not fit into a single category.’
- SCOTT WOROCH, KADENWOOD PARTNERS
ECO-CREDENTIALS
A cross-sector trend increasingly sees modern consumers make purchasing
decisions based upon their principles, as well as characteristics related to
product or service. As a result, luxury consumers are increasingly drawn
to brands able to prove their socio-environmental credentials.
Hotel companies can meet this demand through a number of strategies,
be it the construction process (methods and materials used), the adoption
of green operating principles (prioritising the use of renewables and
minimising wastage), or the adoption of social enterprise/engagement
within the local community.
Furthermore, eco-wellness can be effectively incorporated into the hotel
guest experience and capture the imagination of the discerning guest.
Biophilic design, green walls, limiting the use of carcinogenic materials
and focussing on organic, unprocessed, low mileage food supplies can
all improve the guest experience through an eco-wellness lens.
CASE STUDY: 1HOTELS
1Hotels, whose ‘eco-luxe’ proposition currently consists of two
conversions, one new-build property and a similarly diverse
pipeline, reflects the trend of foregoing a set of physical brand
standards.
Each property is individually curated in response to the physical
characteristics of the site (or property subject to conversion) and
local market conditions. Hence, there is a significant divergence in
scale, bedroom inventory and level of supporting dining, meeting
and leisure amenity between the properties.
The brand’s sole new-build property (currently), 1Hotel Brooklyn
Bridge, has been designed as an ‘urban resort’, capturing both
weekday corporate and weekend leisure demand, rapidly reaching
stabilization and outperforming occupancy expectations.
Despite being a unique collection of indiviudal properties, a set of
core principles underpin the portfolio. Of these, the brand’s eco-
integrity is the most pronounced. Some of the socio-environmental
initiatives incorporated within 1Hotel Brooklyn Bridge include;
• Construction under LEED guidelines using 54 percent regional
and reclaimed materials.
• A LEED ‘dynamic plaque’ which measures and displays the
building’s eco-initiatves in real time.
• A rainwater reclamation system used to irrigate the adjacent
park during summer months.
• 100 percent use of wind power energy. ·
• Low food mile supply chains.
• No paper or plastic used in the hotel operations.
• A percentage of in-room dining sales donated to charity.
1 HOTEL CENTRAL PARK
 THE ECONOMIC ARGUMENT
STAKEHOLDER RETURNS

Construction Costs
When compared to traditional luxury hotel product, smaller room
sizes, a scaled back departmental/amenity offering and efficient
back of house within ‘New Luxury’ hotels typically results in reduced
construction costs per key.

Furthermore, the shift away from opulent, interior design to a more CONSTRUCTION OPERATION
stripped back aesthetic (often using touchpoints that incorporate
local, recycled or planted features) supports opportunities to reduce SMALLER
outlays for fitting out the property. COMPETITIVE
AREA
ADR
REQUIREMENTS
ADR
Inevitably rates vary significantly, dependent on the nuances of
the market and specific concept. Typically however, there is an
opportunity to position rates below that of the traditional luxury set
VOLUME-DRIVEN
of hotels so as to broaden appeal, attracting high-income guests O C C U PA N C Y
who enjoy the animation and innovation these properties offer
relative to the more conservative ambience of traditional luxury.

LESS OPULENT OPTIMISED

Occupancy F I T- O U T R E V PA R
In many cases, the sampled operators seek to maximise guest
throughput, with occupancy levels sitting above the traditional
luxury competition. This is facilitated by the competitive pricing
and subsequent market breadth. This strategy has the additional O P E R AT I N G
benefit of ensuring the maximisation of revenues within secondary COST
departments.
EFFICIENCIES

Secondary Departments
A considered mix of lifestyle oriented amenity, often targeting LOWER
HIGHER
external visitation as much as overnight guests can result in strong CONSTRUCTION
secondary revenues. In some cases, these can reach as much as EBITDA MARGIN
C O ST O U T L AY
55% of total revenues. If able to really capture the imagination of
the local community, external visitation can make up to 80% of total
revenues within food and beverage departments. It is important that
spaces morph throughout the day to maximise revenue generation,
a co-working space by day can become a bar/club by night.
INCREASED ROI

Operating Costs
The targeted service that is often seen in the sampled hotels can
reduce the staff count significantly and therefore payroll costs. ADR TO BUILD COST RATIO
Staff to room ratios as low as 0.5 are not unusual, although where
multiple F&B outlets come in to play this inevitably rises.
TYPICAL TREND
Revenue generating departments are often merged, sharing
resources and space. The effect is to further boost revenue per
V
sqm within the development and create operating efficiencies, for NEW LUXURY
example, a lobby space that includes all-day-dining, grab & go and
retail may be run by a single team.
ADR

Bottom Line
When well executed, the operational efficiencies offered within
these hotels combined with the ability to punch above their weight
in terms of RevPar supports EBITDA margins more in line with a
V

limited service offering than that of the traditional luxury sector.

CAPEX / KEY
 With Thanks

F o r a d d i t i o n a l i n f o r m a t i o n p l e a s e c o n t a c t M u r i e l M u i r d e n , W AT G - m m u i r d e n @ w a t g . c o m
Copyright © 2018 by WATG
 WATG STRATEGY
B E S P O K E A N A LY S I S A N D I N S I G H T S
While WATG is world-renowned for our design services, we are also committed to being a full-service hospitality real estate advisor to our clients. We
recognize that a project’s success is measured not only by how it looks, but by how it performs. Development is a complex undertaking that extends
well beyond site planning, design and entitlement. Mixed-use, hospitality and leisure projects have multiple stakeholders that include developers, equity
and capital partners, management companies and hospitality brands.

Our strategy services are often the “glue” in the delivery of multifaceted projects, through visioning, concepting and competitive positioning that are
grounded in economic realities. A collaborative development strategy will unlock opportunities that meet social, financial, demographic, land use and
environmental goals. What distinguishes us from the other consulting firms is our collaborative approach with our design team; we work in conjunction
with the land planners and architects to identify solutions and maximize the potential for our clients. This consulting expertise is unique within design
firms, and allows us at a very early stage to effectively position the asset, resulting in the optimum opportunity for economic success.

Successful ownership begins with appreciating that hospitality and entertainment development is fundamentally different from most other forms of real
estate. While most commercial real estate assets involve only the land and improvements built on the land (collectively, the “real property”), a hotel or
theme park, for example, typically involves both the real property and an ongoing business enterprise (as opposed to a lease structure). Consequently,
the owner must understand the operational issues relating to the business enterprise, because they will impact the real estate value.

As active participants in such international organizations and programs as The Urban Land Institute, Cornell’s Center for Hospitality Research, Hotel of
Tomorrow initiative – and as proprietary sponsors of research on affluent travelers, WATG is in a unique position to share insights that will help position
your development for success in an increasingly crowded and competitive marketplace. We’re not just looking at current guest preferences but also
how they might change in the future.

WATG will actively participate and facilitate the strategic planning and visioning of the development, including:

Benchmarking the project with competitive and comparable developments

Market trend analysis through primary research

Programming, including amenities, massing and layout of the mixed-use development in collaboration with the design team that is based on the
supply and demand characteristics of the competitive market

Identify potential hotel companies that may be appropriate for the development, based on the geography, market demand and brand recognition

Assessment of market demand to identify source markets, consumer preferences and to position the project relative to local, regional, state and
international trends

Develop a financial model that would yield a proforma and a return on investment analysis

Identify, recommend and facilitate introductions to prospective development partners, operating companies, public relations and branding firms,
project managers and / or legal counsel at the appropriate time and integrate them into the process

FEASIBILITY MARKET ECONOMIC PHYSICAL STRATEGIC TOURISM

ANALYSIS SEGMENTS PLANNING + PROGRAMING POSITIONING RESEARCH
INVESTMENT + PHASING + STRATEGIES
STRATEGIES