The boutique hotel as a relevant concept in the Middle East

In this essay we will look at what this concept is and why it has commercial relevance for this area of the world.

The definition of a boutique hotel today varies, but in most cases it will involve a limited size, a focus on creative and innovative interior design, a high level of service and a promise of a unique guest experience. In essence, boutique hotels go back to where hotels once started, as small, unique places where hospitality was highly personalized, but with copious amounts of design and service “gimmicks” thrown in.

A boutique hotel is often presented as a unique property, therefore not branded. In the current climate of “brands” it will be difficult to convince a guest that he is getting a unique experience if there are dozens of hotels with the same name elsewhere in the world. Although the name on the door may be the same, hotels can still differ. This is often the case when hotels have their individual name or “brand”, but belong to a group or collection. For instance, Hilton Hotels has established a Waldorf=Astoria Collection for its most prized hotels, each having a unique personality. Qasr Al Sharq in Jeddah is part of this collection and is a prime example of a boutique hotel, unique yet belonging to an international chain that lends its management expertise and marketing power to the property. Other hotel chains have such luxury collections, and marketing consortia now exist where the individual operator pays a fee to be included in a group that provides market exposure for its individual members. A few hotel operators specializing in boutique hotels only, such as Orient-Express, manage the hotels that keep their original name and personality.

The increased affordability of international travel has enabled more people to travel. This trend is evident in the ongoing growth of big name hotels with hundreds of rooms. The Middle East is a prime example, as it is consistently quoted as one of the three growth markets, together with China and India. When we look to the hotel markets in Western Europe and North America, we see two recent developments that typify hotel growth in mature markets: The proliferation of mid-market hotels and the emergence of boutique hotels. The latter is clearly created to offer an upscale alternative for the frequent traveler who has become so travel savvy and educated, that the standard 5 star hotel offering is no longer appealing. They have a need to stand out from the crowd and be recognized as an individual. They want their personal needs to be considered, rather than conform to the standard offering of the big brand hotels.

The relevance in mature markets may seem clear, but why the Middle East, where big 5 star hotels continue to push the envelope in terms of facilities and design elements?

To answer this question, we need to understand the markets that serve hotels in the Middle East. Many holidaymakers come from Western Europe, and increasingly Russia, India and China, to profit from the year round climate. The vast majority of these travelers are attracted to large facilities on beachfronts with many Food & Beverage outlets offering choice and variety. At the same time, we see many affluent travelers from these countries looking for an experience that goes beyond what is offered by the big hotels. They seek a more local / Arabic experience, to be treated as an individual, and to experience something unique that cannot easily be replicated anywhere else in the world.

Besides international holidaymakers, since 2001 the Middle East has seen increasing numbers of Arabic tourists who are opting to vacation in their own region. Big international 5 star hotels are often attractive to this market, as they offer an international hotel experience without having to travel far. Whereas international travelers look for big brand names as a guarantee for “peace of mind”, reliability and a little bit of home, the Arab traveler does not have such expectations of the brand name hotels. They do share the expectation of high quality facilities and services. The (GCC) Arab traveler is generally used to living in a home environment with a high level of service. Many families have maids, nannies and drivers to facilitate a life style of relative comfort. When they travel, there is a deeply entrenched “entitlement” to personalized service. While there is no doubt that the big name hotel chains are equipped to service this demanding customer, it is this desire for personalized, on the spot service that I believe gives the boutique hotel relevance for this market segment.

Finally, the Middle East is attracting a large amount of business travel, due to the many projects being undertaken and the availability of investment capital. Traveling business people these days require more productivity in less time. It is therefore increasingly important to create relevant services that enable them to be more productive while on the road. Increasingly companies are willing to pay a premium for their executives’ productivity and we now see so called “Executive” or “Club” floors crowded to the point that they can no longer deliver on their promise. Many of these travelers are now discovering boutique hotels where they are recognized, their needs are anticipated and where the environment enables them to focus on their business rather than on the logistics of staying in a hotel.

This brings us to the economics of the boutique hotel concept. A highly designed property with unique features will drive up the cost of development. The promise of individualized service means a higher ratio of staff to guests, again driving up expenses. It is conceivable that a boutique hotel would be twice as expensive to develop as an upscale 5 star hotel. In addition, the associated running costs in terms of signature amenities, premium decorations and equipment, higher staffing ratios and fine dining facilities, can easily be double that of a big name hotel. Alternately, given the smaller scale, the capital involved in building a 50-room boutique hotel will be much less than that for a 400-room international brand 5 star hotel.

Before committing capital to any hotel project, estimating the return on investment is crucial. The average rate for a 5 star hotel room in the Middle East can run from USD 125.00 to 250.00, depending on location. Given seasonal fluctuations, such hotels will achieve anywhere from 60 to 85% occupancy rear-round. It continues to be a challenge to find enough travelers to fill that many rooms in low season. A luxury boutique hotel room can easily command between USD 400.00 to 1,200.00 per night, and with the property size much smaller, it will generally be trading at 70 – 90% occupancy. To fill a 50 room property in low season when offering a unique product would be easier than to fill 400 anonymous hotel rooms. This is especially true when one considers that many boutique hotels are destinations in their own right.

In general, it must be noted that the markets most suitable for the boutique hotel concept are those that are already well visited and have an established travel infrastructure. There are of course examples of out-of-the-way properties that have ignored this general rule and have managed to establish such a reputation that people will actually seek it out and travel there for the sole purpose of visiting this property. The Middle East offers some attractive remote locations for boutique hotels, but caution must be taken when considering the investment required to make these locations accessible for travelers.

In summary, given the increase in global as well as regional travel, the unique nature of the culture and region of the Middle East, the high expectations of service of local travelers and the availability of disposable income to spend on travel, the boutique hotel has a promising future in the Middle East. With a carefully selected location, a professional designer who is able to give a property unique features that will enable it to establish itself as a destination in its own right, the boutique hotel is likely to prove a sound investment.