Out of Office

Why boutique hotels are so big in not-so-big cities

Julie Satow
The Unscripted Durham hotel, a boutique establishment with 74 rooms, on Corcoran Street in Durham, N.C., June 12, 2017.
Kate Medley | The New York Times

Jane and Greg Hills were visiting New York City when they grabbed a drink in the lobby bar of the Dream Downtown, a boutique hotel in Chelsea. As the full room pulsed with music and guests, the couple had an epiphany: Dream should run their new hotel in Durham, N.C.

"We had been talking to all the major brands, but we wanted someone innovative, creative and entrepreneurial," Ms. Hills said of Dream, a relatively small company that operates 16 hotels. "The banks wanted us to go with someone more well known, but Dream was the right match for us."

The result is Unscripted Durham, a hotel that will have its soft opening this month and the official opening in July in the center of a revitalizing downtown. With its rooftop pool and five restaurants on the premises — a considerable number given that there are just 74 rooms — it is the latest in a wave of new boutique hotels in the nation's smaller cities.

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The Trump Organization, for example, recently announced plans for Scion, a boutique brand that will open its first location in Cleveland, Miss. And industry giants like Marriott and Hilton have aggressively moved into boutique hotels, sometimes called lifestyle hotels. The hotels usually highlight a property's unusual architecture or history, have no more than a few dozen rooms and offer special guest services or amenities.

"In this industry, when one person thinks it is a good idea, everyone piles on," said Jan D. Freitag, a senior vice president at STR, a hotel research firm. "The industry is firing on all cylinders on the supply side."

While hotel expansion is fairly typical in big cities when the economy is growing — New York leads the way with 15,470 rooms under construction — it is less common in smaller areas. In Durham, for example, the number of available rooms grew 5.7 percent in 2016, more than triple the national average, according to STR data. In Cleveland, the number of rooms surged 5.8 percent, while the Albany area of New York had a 5.3 percent increase.

Of all the rooms under construction now, about a quarter are in boutique hotels, according to data from Tourism Economics, a company that forecasts travel trends.

The boutique hotel push is driven by travelers' increasing desire for "genuine" experiences, said Bjorn Hanson, a professor at the Jonathan M. Tisch Center for Hospitality and Tourism at New York University. Many travelers want something fresh and different, instead of the standardization of the large hotel brands.

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.