If you think the most energetic vibe in hotel development is mainly in upscale and luxury properties, think again. Hotel groups like Marriott, Hilton, and IHG see some of their brightest long-term possibilities in the mid-market. They’re keen to develop brands that serve budget-minded, middle-class guests with limited services but a consistent delivery of essentials.

Exhibit A is Four Points Express by Sheraton, a midscale brand that Marriott debuted in 2023 for Europe, the Middle East, and Africa. The brand will offer free Wi-Fi and the option of a paid breakfast, but it won’t usually have fitness centers, shops, or meeting rooms. That’s typical of the midscale category, where hotels offer some comforts that elevate them above budget brands — but still lack full service.

IHG (InterContinental Hotels Group) joined the trend in 2023 by announcing a midscale conversion brand, Garner. Room rates for Garner will be about $10 to $15 less than IHG’s midscale stalwart Holiday Inn Express, and its amenities will be slimmed down. IHG aims to roll out about 500 Garner hotels in the U.S. in the next decade.

Hyatt broke ground in late 2023 on its first Hyatt Studios property, the hotel group’s first move down into the mid-market. Hyatt Studios is an upper-midscale, select-service brand aimed at U.S. extended-stay guests. Developers have already signaled interest in building more than 100 hotels in this streamlined concept.

To be clear, none of the hotel groups are abandoning the luxury and lifestyle categories. However, they believe that long-term drivers of demand and supply point to the mid-market as their greenest field for high-profit, steady growth.

Middle-Class Demand

An important force driving this trend is the ongoing resilience of middle-class travelers.

“The opportunity on a global basis for growth over the next 10, 20, 30 years is in the mid-market,” said Hilton CEO Christopher Nassetta at the Skift Global Forum in September 2023. 

“Why is that?” Nassetta asked rhetorically. “It’s obvious because that’s where the growth demographically is. It’s in the middle class. And what can middle-class customers afford? Mid-market products — whether it’s hotels or anything else.”

Demographers expect another 700 million people to join the global middle class by 2030. Emerging giants like China, India, Singapore, and Thailand are expected to see their middle classes expand further, leading to more travelers. In the U.S., the middle class still represents half of U.S. households, according to a recent Pew Research study.

Interest From Owners

Supply-side issues are another driver of the mid-market opportunity. Many of today’s hotels are run independently, which presents an opportunity for global brands to expand. 

In Europe, the Middle East, and Africa, nearly 1.2 million rooms are in the midscale category. Marriott believes it can win over owners to convert from independent ownership to its new brand, Four Points Express by Sheraton. 

It’s often not a coincidence that many properties in second-tier and third-tier areas are in the mid-market rather than upscale or lifestyle.

“When it comes to suburban, interstate, tertiary markets, we fall off the map because we have nothing,” said Mark Hoplamazian, president and CEO of Hyatt, at the Skift Global Forum in 2023. “Because you can’t build a Hyatt Place, a Hyatt House, or another upscale brand in a lot of those markets and have the math work.”

That’s the thinking behind  Hyatt Studios, which aims to be cost-effective to operate in cities like Mobile, Alabama, where it plans to open a property in early 2025.

Mid-market designs and operational models are often easier for owners to convert the typical independent properties to, compared with more complicated luxury and lifestyle brands.

Not Without Risks

Increased revenues from franchise signing and licensing should boost hotel groups, even though brands further down the chain scale tend to generate less revenue per available room — a key industry metric.

“This is a mature industry, and companies need to find the remaining areas of opportunity,” said C. Patrick Scholes, a managing director in Truist Securities’s research division. 

Scholes said he expects an overall positive impact on the bottom lines of hotel groups. However he noted that one has to be aware of the potential risk of damage to brand reputations.

“The further one goes downscale, the farther one gets away from the core brands [like Hilton and Marriott] — these being the brands that these companies were originally built upon,” Scholes said.

Despite possible risks, the mid-market opportunity only looks to gain momentum.

In 2023, Wyndham launched the Echo Suites Extended Stay by Wyndham, an economy, extended-stay brand. This brand rapidly grew, with more than 200 hotels in its development pipeline already.

“When you wake up in 10 or 20 years and look at X number of millions of rooms built over that time frame around the world, they are going to disproportionately be in the mid-market,” said Nassetta at Hilton.