Hotel Industry Moves Upscale to Attract Millennials

Hilton, Marriott, and IHG plan to court the younger generation with fancier properties, better amenities.

Aug 24, 2014 at 1:13PM

Hilton Worldwide (NYSE:HLT), Marriott International (NASDAQ:MAR), and InterContinental Hotels Group (NYSE:IHG) are leading a boom in U.S. hotel development, and much of it is aimed at younger travelers. The number of U.S. hotel rooms in the construction pipeline rose 20% in the second quarter of this year from the same period of 2013, and more than 60% of those rooms will be in upscale and upper-midrange new hotels. By contrast, economy hotel construction comprises only 2% of the development pipeline.

Young travelers with high expectations

What is driving the move away from budget hotels toward fancier properties with better gyms, faster Wi-Fi, and expanded dining and takeout options? While the rebounding economy has produced an all-around resurgence of travel, the major hotel chains are pursuing the millennial market in particular.

Some 74 million strong, the generation that's currently between the ages of 18 and 35 is the focus of a lot of attention from the travel and tourism industry. Despite (or perhaps because of) the very real issues of student debt and sometimes-challenging job prospects, this age group consistently says it values experiences more than material things -- and it's putting its money where its mouth is.

Millennials are now edging out mid-career Generation Xers and rapidly retiring baby boomers as the top-spending travelers, and they tend to travel more frequently. For this age group, the thrill of getting a rock-bottom rate on a room is trumped by the joy of spending time in a hotel with the amenities they want. And as the first true Internet generation, they use social media and travel sites to check out destinations, hotels, and neighborhoods before they go.

It turns out that doing that homework pays off. These research-happy travelers, who some dub "scrutinizers," are the most-satisfied hotel guests as a group, according to Hotel News Now. By contrast, price buyers who typically seek out economy lodgings are always the least satisfied of all types of traveler. And their numbers are shrinking while the number of scrutinizers is climbing, hence the drop in budget hotel development.

A focus on upscale hotel development

The hotel construction pipeline is full of fancier lifestyle properties and freshly face-lifted existing brands. Overall, the upscale and upper-midscale properties make up 62% of what's under way. And more than half of the pipeline consists of projects launched by Hilton, Marriott, and IHG.

According to Lodging Economics, Hilton has 648 projects in the works for a total of 76,169 new rooms, mostly under the upscale Hilton Garden Inn brand, which already has 600 properties worldwide, and the upper-midscale Home2 Suites and Hampton Inn & Suites brands. Marriott is adding upscale Courtyard and Residence Inn properties, as well as upper-midscale TownePlace Suites and Fairfield Inn locations. Overall, Marriott has 638 projects under way, for a total of 79,543 rooms.

IHG, meanwhile, is focusing on Holiday Inn and Holiday Inn Express. These two upper-midscale brands make up a big chunk of the company's 552 projects (56,388 rooms) in the pipeline.

Lodging Economics said the average project takes just under two years to complete, so many properties that have been announced will come online in 2016. LE forecasts 871 hotel openings in 2016, which would add more than 97,000 rooms to the market.

Room for more growth

It appears that there's room for all those rooms. Hotel rates are up this summer and have been trending upward for a while, due to the rebounding economy and the continued growth of leisure travel, especially among those all-important millennials.

If demand stays strong, industry analysts say even more new projects could be announced, leading to a big increase in new hotels opening through 2019 to cater too experience-hungry travelers. Right now, it looks like Hilton, Marriott, and IHG are in the best position to greet to those guests.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Casey Kelly Barton has no position in any stocks mentioned. The Motley Fool recommends Ford, MasterCard, and Tesla Motors. The Motley Fool owns shares of Ford, MasterCard, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information