Hotel Customers Don't Love Tiny Rooms, They Love Tiny Prices

Last Updated May 4, 2010 2:27 PM EDT

The consumer loves tiny rooms, shouted the New York Times, but reality of the situation is that consumers love a good location for a tiny price. Too bad that one profitable price point may be ruined by too many players flooding the market.

At the Jane Hotel in the West Village, a 50-square-foot room sells for $89 a night, making Manhattan affordable for a week stay. "It's like having a virtual Manhattan apartment," Peter Griesar, 41, a regular guest, told the NYT, noting that the rough cost of a month's stay -- $2,670 -- was not a bad deal for a West Village address. "The price is right, the neighborhood's great, and who spends time in a hotel room in New York anyway?"

So hotels took a page from hostels, those little inns frequented by college students backpacking across the globe, with shared bathrooms and bedrooms to cut costs. Now many are marketing themselves as trendy, but cheap, boutique hotels with single rooms available for those who don't like sharing quarters. Hotels started paying attention to the business model once they began competing against it.

Certainly most of the customers appear to be younger than 45, probably because one needs to be a little spry to climb into bunkbeds. The hotels also seem to cater to a hipster crowd who may get the irony of "distressed opulence." Most of the photos showed people in their 20s or 30s with men sprouting creative facial hair.

However, Griesar had it right. I remember booking a room at a resort and telling my friend how the room didn't have an ocean view. "So?" she said. "How much time are we going to be spending in the room?" She had a point. The exact location of your particular room, view or not, doesn't matter as long as the location of the hotel is where you want it to be. It is, after all, just a place to store your clothes and sleep.

(Prices vary widely, starting at the Jane's $89 singles to the supposedly cheap Pod Hotel, where rooms average about 100 square feet and a single bed with a shared bathroom starts at $159 a night. At the Ace Hotel rooms start at $209 a night for bunk beds.)

Although no one seemed to have vacancy numbers, most of the hotels report doing well, with owners of the Pod wanting to build another hotel to cash in on the small-room craze. Unfortunately, that may be the beginning of the end for this successful strata of hotels. With less than 1,000 rooms at this price point, chances are that most hotels in it will do well. Once Yotel, a British-owned hotel chain, comes to Manhattan with a 669-room hotel next year, it could change the face of the market. Following in its footsteps will be a second Pod Hotel in Manhattan, and if it is similar to the existing one, will also have around 350 rooms. (The Yotel so far sounds the most expensive, with construction at $27,000 a room.)

That means in one year the number of rooms in the market segment will double to nearly 2,000 rooms, possibly flooding the market and exceeding demand. The competition which is now barely perceptible will become palpable. That means price wars and packages, something that hasn't really affected this market before -- because it didn't exist. I predict that at least one of the hotels will probably shut down or scrap its business plan by the end of next year. My vote is with whichever hotel is the priciest, as it has the most to lose.

Photo: The Pod Hotel