This May, Marriott International plans to celebrate the completion of the 500th renovation, marking a milestone for an undertaking the Bethesda-based company hopes will allow it to grab a larger share of the market.
Select-service hotels such as Courtyard — those that offer few frills and little-to-no food and beverage offerings — are enjoying a surge in demand from investors and budget-conscious business travelers. The once vanilla niche has evolved into an increasingly competitive segment that has brand operators and hotel owners jockeying for a position out in front.
“The business traveler has evolved over the last 30 years. They’re getting on their computer, while they’re also socializing, [they] no longer just stay in their rooms,” said Janis Milham, vice president and global brand manager of Courtyard. “We’ve created space that’s inviting and says, ‘Come in, sit, have a cup of coffee and get your work done.’ ”
When Marriott introduced Courtyard in 1983, it was meant to compete with Holiday Inn, Howard Johnson and other lower-priced brands in the motel business. The spartan prototype was designed for quick mass production — Marriott built 100 of the hotels in five years.
Other hotel operators, including Hilton Worldwide and Hyatt Hotels & Resorts, soon rolled out their own competing brands, turning the limited-service model into a more distinctive segment. As the sleek modern look of boutique hotels began to steal customers, hotels across the service spectrum began sprucing up.
“Courtyard has been around for a while and had a certain staid look to them,” said Arne Sorenson, chief executive of Marriott, who took the helm in March. “It is our biggest brand, was masonry built and had a real need and opportunity associated with this renovation.”
The chief executive estimates the renovations cost an average of $650,000 per hotel. Marriott, which has an ownership stake in only a handful of the properties it operates, spent $50 million to $75 million of its own money on the project, Sorenson said. Hotel owners were on the hook for the majority of the renovation tab.
“It wasn’t an easy sell in late 2008 and 2009 when people were afraid the world was coming to an end,” Sorenson said. “But when we stepped back from the brink a little, they could see the compelling nature of this. And we’ve done our best to work with them to be flexible.”
Investor interest picks up
Thomas J. Baltimore Jr., the chief executive of the Bethesda-based RLJ Lodging Trust, said he had no qualms about renovating more than half of the 33 Courtyard properties in the real estate investment trust’s portfolio.
“We’ve seen improved guest satisfaction and believe it will yield attractive returns,” he said.
RLJ Lodging is one of the most active investors in select-service hotels, but the company is starting to see competition from institutional investors clamoring for the assets. Jones Lang LaSalle Hotels predicts sales of these properties will double this year over 2011.
“Select-service banners offer stable returns for investors,” said Al Calhoun, managing director of broker-research firm Jones Lang LaSalle Hotels. “The demand is also attractive because select-service hotels suit the needs of the vast majority of travelers.”
Revenue from limited-service hotels in the United States was up 8.9 percent to $10.4 billion in the first quarter, while occupancy rates averaged 54.8 percent, up 4 percent from the same time a year ago, according to Smith Travel Research.
Calhoun and Boyer agreed that despite heightened competition from Hilton Garden Inns and Hyatt Place, Courtyard by Marriott remains the leader. It is the 10th largest hotel chain, with more than 900 properties in 37 countries, constituting 21 percent of Marriott’s total rooms.
Locally, Courtyard holds 4.5 percent market share in the Washington area, giving it the largest stake of the limited-service market, according to Calhoun. McLean-based Hilton, he added, follows close behind.
Sorenson has his sights set on widening that gulf by rolling out 168 new Courtyard properties in the next five years.
At least 35 of those assets will be in the United States, but Sorenson said India and China present fertile ground for long-term development.