Select-service hotels, as the name suggests, have the fundamentals of limited-service properties together with a selection of the services and amenities characteristic of full-service properties. While select-service properties have more amenities than limited-service properties but generally do not have multiple restaurants, extensive catering services or an abundance of meeting space. As such, select-service properties are less generally expensive to operate and have higher operating margins. For years select-service hotels have been the darling of the hotel industry, said Ketan Patel, managing director, JLL Hotels & Hospitality Group. “We’ve seen the proliferation of brands and development in that space,” he continued. “It is an easier operation, it has higher cash flow, the margins are better and there’s less risk. So we've seen developers continue to flock into that space and, over time, more and more institutional interest as well.”
After every downturn and each cyclical rebound in the industry, the select-service hotel industry has been the fastest to recover. This has solidified it as a stable asset class. “I see that model continuing to grow as we’ve got brand new brands that are continuing to enter the space,” Patel said. “Historically, you’ve had the mid-level select-service but now it's starting to evolve and we’ve got upscale brands in the segment.”
Since many hotel companies are looking to grow unit counts, Patel anticipates new brands will grow the space further. “They will figure out ways to differentiate [the brands] from one another, which is becoming harder and harder to do,” Patel said.
In addition to the new development brands, there also has been an increase in conversion-focused brands like IHG’s Garner and Spark by Hilton. These brands, Patel said, are "trying to go downstream" and appeal to owners of Days Inn and Comfort Inn properties. “[Hotel companies] see an opportunity to play in a more economy space, so we’re seeing that happen, he noted, adding that the brands have a "healthy pipeline" thanks to strong "buzz" and activity around them.
Recently, the distinctions between select-service and extended-stay hotels have become increasingly blurred. Select-service hotels now incorporate some extended-stay amenities including in-room kitchenettes and flexible workspaces, while a number of extended-stay brands have added business centers.
Amid declines in total U.S. hotel liquidity, select-service and extended-stay hotels have remained a bright spot for investors. While investment volume has declined relative to 2022’s record levels, the sector has contributed a 52.5 percent of U.S. hotel liquidity, the highest portion in history, according to JLL research. Investors continue to gravitate towards the sector driven by its strong returns, particularly compared to other commercial real estate property sectors. Driven by a broad demand-base and lean operating model, the sector’s consistent performance relative to the broader industry has made it more attractive to investors seeking reliable risk-adjusted returns.
To view Hotel Management's list of select-service chains, visit our April issue.