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Hospitality companies are contending with a drop in new hotel construction by poaching independent and rival properties for their own brands.
Conversions are some of the biggest growth drivers since the pandemic as financing for hospitality projects has dried up, the Wall Street Journal reported. The tactic is more common during times of economic uncertainty and slower development cycles.
Hilton is leading the charge among the biggest names in hotels. Last month, the company launched Spark by Hilton, its first brand geared specifically towards converting other hotel properties into one of their own.
BWH Hotel Group is also pursuing existing properties to fold into its own system. Chief executive Larry Cuculic said the company typically targets a 50-50 growth split between conversions and construction, but the former’s share in terms of addition is up to two-thirds.
Marriott has also pursued these conversions, largely through the upscale Delta Hotels brand it acquired in 2015. The company’s global development officer, Noah Silverman, said conversion deals have picked up compared to the company’s typical rate of 15 percent of annual room signings.
The increase in conversion attempts comes as new construction in the sector has lagged, hampered by supply chain issues and rising interest rates.
The number of rooms in the active development pipeline was down 2.6 percent year-over-year at the end of 2022 and 6.1 percent from pre-pandemic levels, according to Lodging Analytics Research & Consulting. Rooms in the planning phase at the end of the year were also down from the previous year by 15.6 percent.
For independent hotel owners, the advantages to converting into a branded property for a major company include being folded into a loyalty rewards program or being able to save on operating costs. Some may also be able to charge for higher room rates by upgrading their properties.
But these upgrades can come at a significant cost, considering conversions to a Spark by Hilton property can cost $20,000 to $25,000 per room.
— Holden Walter-Warner