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The economy sector is at risk of becoming commoditized and completely replaced by midscale hotels unless efforts are made to distinguish the brands and their benefits from higher-end hotels.
When Randy Smith first started compiling hotel performance data in his basement during the early days of STR, the economy segment was nearly bursting at the seams with demand. But then, the lumbering savings and loans crisis pulled the broader economy into the depths of recession—and the budget hotel sector went with it.
More than two decades have passed, but the segment has yet to fully recover. Economy hotels in the U.S. have not finished the year with an average occupancy of more than 60% since 1995.
But then…An affiliate of private equity behemoth Blackstone Group LP in May said it would purchase Accor’s Motel 6 and Studio 6 budget brands for $1.9 billion. The deal by itself signaled an unexpected appetite by investors for the economy sector—to say nothing of the $500 million Blackstone earmarked for capital improvements in the next three to five years.
While the economy segment struggles to regain its footing, brand executives and owners are optimistic about its long-term outlook.