Extended stay hotels are posting strong gains in occupancy
this year, and analysts said the hotels are likely to achieve rate increases by
year-end. Although major extended stay brands still report ambitious
development plans, however, additional extended stay supply in the United States
is expected to dwindle considerably in the coming years.
During the first three months of this year, extended stay
demand made some of its largest year-over-year increases ever, according to the
Atlanta-based Highland Group's first-quarter U.S. extended-stay lodging report.
Overall demand was up by 16.5 percent for the quarter, the highest growth rate
seen in more than a decade, and overall room night demand topped record levels
set in 2008.
Overall U.S. extended stay occupancy for the quarter
increased to 67.7 percent, up 10.4 percent from 2009 levels. While extended
stay hotel occupancy remains at its lowest levels in several years, it still is
15 percentage points higher than overall hotel occupancy reported by Smith
Travel Research.
Bill Duncan, senior vice president of brand management for
Hilton Worldwide's Homewood Suites, said the brand recently has been reaching
70 percent occupancy, even on Sunday nights.
"We hit very strongly at the beginning of the year, and
occupancy is now growing from 10 to 15 percent per month year over year,"
Duncan said.
Marriott International president and COO Arne Sorenson said
his company's extended stay brands, Residence Inn and TownePlace Suites, were
keeping pace with the companies' other brands in the demand recovery. "That
business depends on the projects that companies announce," Sorenson said. "That
business will come back, so we're in a pretty powerful place."
Typically, extended stay hotels lag other hotels in entering
a downturn and are slower to exit, Highland Group principal Mark Skinner said.
This time, largely because of the slowdown in the construction industry,
extended stay hotels in the economy and midprice tier actually were the first
to see the decline, he said.
Similarly, extended stay hotels began to see revenue per
available room increase—up 0.9 percent overall and by 1.8 percent in the
upscale tier—in the first quarter of this year, a quarter before the rest of
the hotel industry saw gains.
"Extended stay hotels will lead the comeback compared with
overall hotels," Skinner said. "Extended stay hotels are a value buy
against a comparable hotel, and very much during this recession the consumer
seems to be looking for a better value in almost everything."
Occupancy gains have yet to translate into rate gains for
extended stay hotels. Overall extended stay average rate dropped by 8.6 percent
year over year in the first quarter of 2010, more than double the rate of
overall hotel industry decline reported by Smith Travel Research. The largest
drops were in the economy and midprice tiers. The upscale rate drop was a more
moderate 4.5 percent.
Skinner said extended stay hotels would see rate growth by
year-end, particularly as construction begins to taper off. In the past 10
years, the number of upscale extended stay rooms in the United States has more
than doubled, and overall supply was up 5.5 percent in the first quarter of
2010 from 2009, said the Highland Group. However, the number of rooms opened
during the quarter was 77 percent lower than in the first quarter of 2009, and
Skinner said supply growth is likely to drop below 2 percent in coming years.
Even so, major extended stay brands continue to focus on
growth. InterContinental Hotels Group recently opened a property near Times
Square in New York, which immediately began seeing occupancy in the 90 percent
range, said Gina LaBarre, IHG's vice president of brand delivery for the
Americas.
Homewood Suites is on track to open its 300th hotel toward
the end of this month, Duncan said, and the brand continues to develop in a mix
of urban and suburban locations.
Hilton plans to open its first new midprice extended stay
property, Home2 Suites in Fayetteville, N.C., in December.
Launching extended stay brand Element alongside
select-service brand Aloft a few years ago, Starwood Hotels & Resorts
expects the two brands together to have almost 60 properties open worldwide by
year-end.
This story originally
appeared in the August 9, 2010, edition of Business Travel News.