Hospitality + Leisure Trend Watch May 02, 2017

Diversify and Conquer: The Expanding Landscape of Non-Traditional Hotel Products

Hotel brands are expanding their portfolios to attract different demographics and new investors/owners in a market where the demand for budget accommodation continues to rise, guest demographics diversify and Airbnb regularly disrupts the status quo. These factors are paving the way for the emerging diversity of alternative accommodation products as brands begin to respond to their guests’ desire for a more personalized and local experience. Airbnb may have revolutionized the shared space concept, but  brands are responding as much to investor appetite for more targeted products, as to Airbnb and other challenges for hospitality businesses.

The big hotel brands have been introducing new brands with a focus on public spaces and F&B facilities, which are aspects the traditional Airbnb shared space platform cannot offer. Meanwhile, the push into lifestyle products continues, and now many brands are targeting some form of hybrid shared space product focused on the hostel and serviced apartment models that also offer some of the traditional hotel services and amenities. It is a transformational time for the hospitality sector, offering opportunity as well as challenges as the relentless drive to meet guests’ evolving needs and preferences gives rise to a plethora of brands and a blurring of the lines between the various accommodation segments.

So what are the new alternatives and what issues do the brands and hotel owners face in negotiating deals involving these new alternatives?

The New Alternatives

Affordable Lifestyle Brands

The “affordable lifestyle” brands target those guests seeking a more contemporary concept than is traditionally offered in upper mid-market hotels. The big brands introducing the affordable lifestyle alternatives include Marriott with Moxy hotels (offering smaller guest rooms with larger public spaces), and Accor with its investment in Mama Shelter hotels and 25hours hotels.  These new offerings from “legacy” hotel companies compete with the likes of Yotel, Citizen M, Room Mate Hotels and the Arlo hotels in New York. Citizen M and Room Mate Hotels are also new affordable lifestyle brands with Room Mate offering rooms for three and four people allowing groups to stay in one room.


Meininger hotels offer a hybrid between a hostel and a hotel which its Chairman, Navneet Bali, describes as “a designer budget hotel with a hostel embedded inside”. Tailored to both backpackers and families, this product allows a guest to choose between a private room or a bed in a shared room. Meininger describes it as “affordable prices for service of a hotel and atmosphere of a hostel.”

Accor has also recently introduced a new brand Jo&Joe that it describes as blending “the best of private-rental, hostel and hotel formats.” Jo&Joe offers hostel-style shared rooms and traditional hotel rooms, while also offering unique alternatives known as "OOO!" (Out Of the Ordinary) that will include products such as yurts, hammocks and caravans without sacrificing privacy. Accor is also focusing on the public and F&B space to also capture the local market and ultimately optimize revenues.


Hostels generally provide great social atmospheres and group events including music, and as the stigma associated with the term “hostel” diminishes, hostels are slowly becoming a popular hotel alternative to those beyond the young backpacker demographic. Invesco’s partnership with Patron in Generator was an early sign that the hostel market was being elevated out of its backpacker lineage. Another hostel brand of note is St. Christopher’s Inns. Hostels, and other budget products, are viewed favourably with investors given that the market is perceived as having a more resilient demand pattern that can better weather a crisis in comparison to the luxury and first-class segments.

Service Apartments/Aparthotels

Although serviced apartments and aparthotels have been around for a while, we are seeing a growing number of brands surfacing in this sector. Closely related to the branded residences market, in which hotel brands are already dominant, these products are traditionally aimed at corporate markets seeking reliable accommodation solutions for longer stay needs.  However, they are becoming increasingly popular for weekend breaks and those wanting more flexibility to control food expenditures.  

Aparthotels are serviced apartment products with the amenities and facilities of a traditional hotel. In this context, Marriott has the Marriott Executive Apartments, TownePlace Suites and the Residence Inn by Marriott brands, Hyatt has the Hyatt House, Hilton has Home2Suites and Homewood Suites, Accor has Adagio and Suite Novotel, IHG has Staybridge Suites, and Bridgestreet and Frasers Hospitality each offer a range of both aparthotels and serviced apartment products.

Go Native is an extended-stay serviced apartment product that was set up in 1998 and now has apartments predominately across the United Kingdom with a focus now on expansion in Europe and the United States. Investor Ares has taken an interest in the market with its recent acquisition of a 70% stake in Go Native.

Zoku is a new brand with its first property located in Amsterdam. It describes itself as “a home-office hybrid, also suitable for long stays, with the services of a hotel and the social buzz of a thriving neighborhood.” Zoku is currently seeking a rollout in the key European markets.

Private Rentals

Accor recently acquired Onefinestay, an Airbnb-like platform focused on luxury and unique homes that also offers certain personalized hotel services such as cleaning services. Accor has also acquired stakes in other similar products such as Oasis Collections that is focused on the U.S. market, and Squarebreak that is focused on the French market.

Room Mate Hotels recently launched its new product, BeMate which sees its hotels manage local third-party owned apartments, while offering guests some of the hotel services and amenities on an on-demand basis, offering a tailored and bespoke service.

Other Alternatives

The UK is experiencing an uptick in “staycations” (perhaps due to Brexit), with products such as Centre Parcs and other holiday parks and caravan parks drawing interest from investors. 

To Diversify and Conquer, What’s Next?

Beyond providing a diversity of accommodation products, players in the hospitality industry are now focused on investing in, or acquiring, alternative products to enhance the guest experience and offset the challenges posed by the sharing economy. Not only did Accor acquire a number of alternative accommodation products to offer its guests product diversity, it also purchased the online concierge platform, John Paul. Marriott’s recent acquisition of a stake in PlacePass, an online search and comparison engine that helps guests select tours and activities to add to their trips is also evidence of hotels seeking diversification. We expect to see more developments and acquisitions offering a more holistic and personal guest experience, as well as a focus on technological innovation.

Negotiating in an Ever-Evolving World

The changing landscape of accommodation products demands a fresh assessment of the contractual framework underpinning the relationship between hotel brand and hotel owner.  Below are some issues that should be considered when negotiating agreements for these new branded products:

  • Key money – will brands be more willing to offer key money (or offer more key money) to gain brand traction and awareness?
  • Term – is a long-term agreement appropriate for a new brand, especially one aimed at a transient or trendy market?
  • Right to brand-flip – is a right to “flip” to a more established brand appropriate if the system has not gained traction as expected?
  • Performance tests and other types of performance measures/owner termination rights – how will these be established in light of the fact that a new brand has no system of its own or track record, or where there are insufficient comparable properties? (Further, comparative performance data may not be available in new sectors.)
  • Brand standards – how are these defined? 
  • Termination rights – what termination rights should an owner have in the event the brand is not sufficiently developed and expanded? Are there target openings and new flags that must be established by certain dates? Are there key geographic markets that must be penetrated?
  • System costs – how are system costs apportioned/absorbed when there are only a limited number of properties to share such costs?
  • Brand development costs – how are such costs apportioned between a brand and an owner?
  • Territorial restrictions – should the industry standard model of limiting the restriction to a specific brand be accepted where there is a possible blurring of lines between product segments?
  • Operator assignment rights – what is reasonable in light of the number of properties in the system

For those brands diversifying beyond their traditional accommodation products, the regulatory framework should always be kept on the radar. Alternative hotel products may have different planning and regulatory issues to be aware of. For example, the increase in guest capacity per room may have repercussions from a fire and life safety perspective for hostel-esque products, as will the lack of daylight in guest rooms for those budget brands seeking to minimize development costs. Likewise, attempts to link complimentary goods or services may bring other legislation into play, for example, package travel regulations.

Product diversity increases the possibility of mixed-use projects allowing synergies between different brands and products of a hotel brand company. For example, Marriott has many dual-branded products in EMEA with full-service or select-service products (such as Marriott or Courtyard by Marriott branded products) developed alongside extended stay products (such as Residence Inn by Marriott or Marriott Executive Apartments), and it may be the case that we start to see mid-market hotels coupled with hostel products (such as a Novotel and a Jo&Joe).  

While this diversification and change has been relatively rapid, this is the new norm. In an age that rewards innovators and first-movers, brands need to find new ways of attracting and retaining customers, pre-empting rather than responding to challengers and disrupters like Airbnb, when the response is often too late.