A report from the Highland Group suggests that lifestyle hotels, formerly thought of as niche offerings that pandered to a specific corner of hotel clientele, are now outpacing traditional luxury establishments. Demand and rates for boutique hotels have spiked and are forecasted to steadily grow, while luxury establishments have begun to see stagnation in both categories.

As a property investor already navigating a competitive market, seeing such a surprising trend emerge might alter your own plans to invest. Capitalizing on the boutique hotel demand requires an understanding of the most lucrative windows of opportunity, the pros and cons of niche properties, and a strategy for entering the market while minimizing risk.

In this article, we’ll give you the tools you need to explore investment opportunities in the lifestyle hotel market, showing you how best to navigate this exciting new development.

Exploring Lucrative Windows Of Opportunity

Understanding how best to capitalize on this phenomenon requires you to firmly grasp why people are looking at niche properties in the first place. Customers don’t want standardized hotel experiences anymore; like in other aspects of their dealings with the market, they want personalization. Traditional luxury hotels offer a standardized vision of comfort and homeliness, whereas lifestyle hotels offer carefully curated experiences that mesh with customers’ lifestyles and preferences.

Let’s explore some of the most popular lifestyle hotel types, both to give you an idea of the unique value these hotels offer to their clientele and to point you in the right direction of where to invest.

Adventure boutique hotels

Adventure boutique hotels have become extremely popular among consumers, as they combine the benefits of unique outdoor activities with high-end accommodations. As rates of American outdoor activity and consumers’ desires for more outdoor experiences have increased, adventure boutique hotels, like other outdoor-based businesses, stand poised to profit tremendously. Adventure boutique hotels offer one-of-a-kind outdoor experiences that the average American can’t do at home, like snorkeling, flying, horseback riding, and hiking.

Wellness retreat boutique hotels

These hotels offer immersive experiences that unite top-tier accommodations with programs, activities, and getaways designed to promote health. Wellness retreat hotels incorporate holistic health practices into every facet of the guest experience, providing opportunities to digitally detox, connect with like-minded individuals through group exercises, and connect with the environment.

Historic boutique hotels

Historic boutique hotels are renovated places of historical significance that offer guests the opportunity to step backward through time, curating experiences from bygone eras for guests’ education and enjoyment. Guests have the opportunity to wear period-appropriate clothing, learn about practices from a bygone era, and enjoy one-of-a-kind entertainment: all while staying in top-of-the-line (if historically furnished) rooms.

As you can see, these hotels all offer experiences attractive to niche audiences; these aren’t for everyone. But the experiences that they provide are personalized to customers’ liking, are uniquely distinct from traditional hotels, and can sustain a higher price point as a result.

Entering The Market And Minimizing Risk

Before entering the market, you have to understand the pros and cons of investing in these kinds of niche hotel experiences. Seeing as we’ve already covered the benefits from the guest end, let’s start by tackling the cons you may run into:

  • Market fluctuations: While lifestyle hotels are currently on an upswing, there’s no guarantee that they will stay that way. Traditional hotels have been so successful because they offer a cookie-cutter, comfortable hotel experience that customers want and expect; lifestyle hotels’ alternative offerings are popular now, but their popularity is by no means guaranteed.

  • Room-rate shifts: Similarly, hotels’ average room rates are never set in stone, and vary depending on demand and economic conditions. While this can be said of both traditional hotels and lifestyle hotels, it’s crucial that you understand that your passive income will not be as stable as, say, if you were renting out a home.

  • Difficulty reselling: It’s tough to resell a traditional hotel; reselling a lifestyle hotel that panders to a niche market may be even harder.

However, the potential pros involve:

  • Higher price points: Customers are willing to pay more for personalized, curated experiences. As the owner of a lifestyle hotel, you can charge more for the experience than a traditional hotel and still draw clientele.

  • Early buy-in: While market fluctuations will always be a concern in the hospitality space, the lifestyle hotel trend is so new (and so lucrative already) that you can likely secure property at a premium.

  • Portfolio expansion: Diversification is the key to successful investing because it minimizes risk. As a real estate investor, you likely have property across other lucrative markets already — but have you diversified into the lifestyle niche? Choosing to put a stake in the currently high-value market of lifestyle hospitality stands to benefit you in the present; and should the value of that property crash 20 or 30 years from now, you’ll have other sources of income to help you weather the loss.

Reaping the benefits of this portfolio expansion while mitigating the risk is a matter of shrewd navigation. Risk avoidance strategies like diversifying your portfolio, maintaining emergency funds, and conducting thorough financial analyses on the property and its location will help you narrow down lucrative opportunities in the lifestyle hotel market, while also cushioning yourself against unexpected complications.

You can also look into non-traditional investment strategies like a 1031 exchange, which allows you to swap investment properties without immediately paying taxes on gains. A 1031 exchange allows you to seamlessly slide into the lifestyle hotel market by transferring profits from one hotel sale to another, while also preserving more capital on hand for expansions, renovations, or emergency cushioning. Other hotel investment strategies you may wish to look into include Real Estate Investment Trusts (REITs), crowdfunding, and stock buy-ins.

A world of opportunity is at your fingertips. Lifestyle hotels offer a degree of personalization and curated experience that is attractive to hospitality consumers; there’s no indication of that changing anytime soon. Follow the above tips, and you’ll be well on your way to strategically diversifying your portfolio with the hottest hospitality property on-market.

By Indiana Lee