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Understanding the Four Major Hotel Types
Quick Facts:
Hotels are increasingly owned by large chains and operate under franchisees, primarily due to acquisitions within the last 30 years. Less than 40% of hotels are independently owned.1
The top five franchisors or 'flags' by total room count in the U.S. include Marriott International, Hilton Worldwide, Wyndham Hotels & Resorts, Choice Hotels International, and Intercontinental Hotels Group.2
Hotels provide lodging or accommodation and are a subcomponent of the hospitality industry. You'll often hear the words 'lodging,' 'hotels' and 'hospitality' used interchangeably in the real estate industry.
By understanding the different types of hotels, investors may be able to gain a better sense of a particular hotel's demand drivers. For example, the services offered at the hotel '“ food and beverage or spas treatments '“ have the potential to provide additional revenue streams.
Categorizing hotels can be an art and a science, therefore definitions vary within the industry. Generally, hotels can be classified by:
The range of services or amenities that are offered to guests
Their position on the Smith Travel Research (STR) 'Chain Scale,' which divides hotels into six tiers based on the hotel's average daily room rate. The six categories include Luxury, Upper Upscale, Upscale, Upper Midscale, Midscale, and Economy.3
Essentially, as hotels offer more amenities and services, they move up the STR's Chain Scale from economy to luxury.
Using the above two factors, hotels can be grouped into four major types:
Full service: These hotels usually offer an extensive list of guest services and amenities such as on-site restaurants, banquet and meeting rooms, concierge service, spas, gyms, and retail shops. For full service hotels, the overall success of the hotel is generally highly sensitive to the quality of its onsite amenities, particularly the food and beverage services. Some examples include brands such as Hyatt, Ritz-Carlton, St. Regis, and Westin. Typically, Upscale, Upper Upscale, and Luxury properties are categorized as full service on the Chain Scale.4
Limited service: A step down in terms of service and amenities from full service hotels, limited service hotels typically offer fewer amenities compared to full service hotels. These often lack room service, on-site restaurants, and concierge services but can include meeting rooms, a fitness center, and sometimes a swimming pool.
The operations of this type of hotel are generally more predictable due to fewer amenities that are tied to performance. Often these include 'budget hotels' with their 'no frills' approach, usually offering one or two amenities with a focus on providing the basic necessities for accommodation with low rates as their main offering.
Some examples include Fairfield Inn, Hampton Inn, Holiday Inn Express, EconoLodge, Super 8 and Starwood's Aloft. These hotels are often in the Economy, Midscale, or Upper Midscale segments of the Chain Scale.5
Select service: A blend between limited service and full service hotels, these hotels tend to offer more amenities than a limited service hotel but fewer amenities than a full service hotel.6
While 'select-service' is fairly new term within the industry, it is a growing segment because of its catered approach.6,7 The U.S Hotel Appraisals notes that 'the select service segment has continued to increase its competitive advantage by offering the in-room amenities of full service hotels while keeping prices low in the absence of a full-spectrum product offering.'
Examples include Hilton Garden Inn, Courtyard by Marriott, Best Western, Days Inn, and Clarion. *
Extended Stay: A mix between select and limited service, extended stay hotels are designed to attract guests looking to stay for five days or greater. Whether its business travelers on extended assignments, families in the midst of a relocation, and others in need of temporary housing, extended stay hotels typically offer discounts for stays and generally quote weekly rates. Examples include Extended Stay America, Suburban Extended Stay, Hyatt House, Home2 Suites, and InTown Suites. These hotels generally belong under Economy on the chain scale.8
Want to learn more? Read more about the outlook for hotel real estate.
Footnotes:
Independent Hotels Are Disappearing as Chains Grow, The New York Times, Oct 2019.
Why More Hotels Are Owned by Franchisees, Hotel Online, February 2020.
Resources/Glossary, Chain Scale, Smith Travel Research.
Resources/Glossary, Full service Hotel, Smith Travel Research.
Resources/Glossary, Limited service Hotel, Smith Travel Research.
'Part 2 of 3: Select-Service Hotels', U.S. Hotel Appraisals
U.S. Select-Service & ExtendedStay Hotel Investment Trends, JLL, January 2023.
Resources/Glossary, Extended-Stay, Smith Travel Research.
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