Extended Stay Supply Nears Record Growth Levels

Following another year of solid performance, the rate of supply growth for extended stay rooms could reach a six-year high this year, and several brands in the tier are reporting a record pace of development as they extend into urban and international markets.

By the end of 2006, the number of extended stay rooms under construction had increased 46 percent compared with projects underway at the end of 2005, according to the Atlanta-based Highland Group's 2007 U.S. Extended Stay Lodging Market Report. If the completion rate holds steady, extended stay room supply will increase by 7.2 percent this year, the highest increase since the almost 10 percent increase in supply growth seen in 2001 compared with 2000, the report indicated.

Last year, supply increased by only 5.2 percent compared with 2005, a slightly slower pace than seen the previous year, caused partly by some projects getting bogged down with higher construction costs, according to the Highland Group. That still remains much higher than the overall hotel industry—about nine times the growth rate, in fact.

InterContinental Hotel Group's upscale extended stay brand, Staybridge Suites, opened its 100th hotel earlier this year, in Tallahassee, Fla. It since has opened several more, said Robert Radomski, vice president of brand management for Staybridge. With projects underway in Chicago and Milwaukee and several imminent groundbreakings, the brand's next 100-mark celebration shouldn't be too far away, he said.

"We reached the 100th-hotel plateau faster than any other upscale extended brand, and growth will only increase from here," Radomski said. "We have a record 30 hotels under construction, a record 115 projects in the pipeline and we expect to double the size of the brand in three years."

Hilton's Homewood Suites, meanwhile, is scheduled to open its 200th property this month, which either will be in Ithaca, N.Y.; Hartford, Conn.; or London, Ontario, depending on timing. The brand opened 30 hotels in 2006 and is looking to open about 35 more this year, according to Rebecca Wyatt, senior vice president of brand management for Homewood Suites.

"Development continues to be a huge priority," according to Wyatt. "Our occupancy has been terrific. We ended the year at 76 percent."

Marriott International's two extended stay brands also are on the fast track for development, said Laura Bates, the company's senior vice president of extended stay. Its Residence Inn brand is at about 520 properties with about 130 in the pipeline, she said. The smaller of its brands, TownePlace Suites, is up to about 120 properties and has grown its marketshare by about 14 points, she said. It's in a prime position for growth, particularly into more urban settings.

"I don't see why we couldn't have 300 to 400 hotels," Bates said. "There are many markets where we have opportunities."

Brands Measure Global Demand

As they expand, upscale extended stay properties also are looking at opportunities for international penetration. Extended stay brands familiar to U.S. travel buyers are not yet prevalent in Europe, according to IHG's Radomski, but Staybridge recently broke ground on a new property in Liverpool, England, that should be open in about a year. Staybridge has at least five other projects in the planning stages for the United Kingdom and soon the brand will be announcing further European expansion, he said.

Marriott's Executive Apartments brand already is established in Europe to cover the luxury market, Bates said. With 16 open in key international markets, the company is looking at other ways to capture extended stay customers overseas, she said.

"We know there's extended stay demand globally, and we're studying the right brand to meet that demand," Bates said. "Marriott Executive Apartments has been a very successful product for us, so we're looking at how we might grow that and Residence Inn."

The majority of room supply growth remains in the upscale tier of the extended stay market, according to the Highland Group. The tier had a 9.4 percent growth in supply in 2006 over 2005, compared with a 2.8 percent growth rate in the midprice tier and a 2.6 percent growth rate in the economy tier.

Many brands within those tiers, however, have ambitious growth plans of their own. IHG's Candlewood Suites, for example, is moving into such new markets as Montreal, Toronto and Destin, Fla., and is on track to meet its development goals for the year, said Gina LaBarre, Candlewood's vice president of brand management.

"It's still unbelievable growth," according to LaBarre. "We have 50 set to open this year, so we're opening about one a week."

Extended Stay America—which operates the Extended Stay Deluxe, Extended Stay America, Homestead Studio Suites, StudioPlus and Crossland brands—has focused less on new construction in recent years than it has on rebranding through acquisitions, according to company president Gary DeLapp. Last month, private real estate firm The Lightstone Group announced that it would acquire Extended Stay Hotels for $8 billion from The Blackstone Group, but DeLapp said the new ownership would not significantly change the chain's approach.

"Some of the strategies we had going forward with Blackstone will be going forward, and we'll finish up the rebranding with the capital infusion," DeLapp said. "We'll continue to focus on new development opportunities, markets we would like to penetrate on the East and West coasts."

Choice Hotels International, meanwhile, also is beefing up its economy extended stay offering, Suburban Extended Stay Hotels, which it acquired in September 2005. It soon will add the brand to its Choice Privileges reward program, said David Pepper, Choice's president of upscale and extended stay markets.

"We have 11 hotels that are in the development process, under construction or in conversion," Pepper said. "We actually just executed our first contract in Canada, so we're seeing a lot of interest."

Amid the development, extended stay brands also continue to make improvements to their existing product as well, hoteliers said. More than 100 Residence Inns are renovating this year to conform to a new design that will improve the public and outdoor space within its properties, Marriott's Bates said. TownePlace Suites, meanwhile, has developed its rooms to improve work surface area and storage area, she said.

IHG's Staybridge Suites has equipped about 75 percent of its rooms with complimentary wireless Internet service, and the amenity should be available throughout the brand within the month. Staybridge's Radomski said the completion would make the brand the first upscale extended stay brand to have free Wi-Fi available brandwide. Wi-Fi offerings also remain a focus for Extended Stay America, according to DeLapp.

Hilton's Homewood Suites has embarked on a number of technical offerings for its guests and employees. The brand has launched an online suite-selection tool for its high-ranking rewards members and also is rolling out a new IPod-based training program for its employees to improve service.

"You use real people doing the real job, and you can do voiceovers in various languages," Wyatt said. "Employees could refer to it while they're cleaning a suite. They could get their IPod and listen to it in the language of their choice."