Extended Stay Boom Extends To Transient Travelers

<B>Extended Stay Boom Extends To Transient Travelers</B>

By Bruce Serlen

The number of extended stay properties has continued to grow to the point where the segment now represents nearly 5 percent of the total U.S. lodging industry. In terms of rooms, this translates into more than 200,000 rooms nationwide. Average occupancies and room rates, meanwhile, are up in each extended stay price point: economy, midprice and upscale. Overall, occupancy rates have hovered around 75 percent the past few years, about 11 percentage points above occupancy rates for the U.S. lodging industry overall for 2000 through July as tracked by Smith Travel Research.

This rosy picture is at the heart of a report issued last month by the Extended Stay Council of the American Hotel & Motel Association and The Highland Group, an Atlanta consulting firm that specializes in the extended stay segment.

According to Mark Skinner, a Highland Group partner, extended stay properties are even proving successful at attracting the one category of business traveler they were least intended to serve: the transient guest. "Transient demand, for example, averaged 16 percent at the economy level, increasing to 45 percent at upscale properties," he said.

With Skinner projecting that 26,000 new extended stay rooms will come online by year-end, BTN polled 13 leading extended stay brands to get a better picture of just where across the country this development was occurring. Given that extended stay properties tend to attract corporate employees in the midst of a relocation or on long-term assignment, the new construction could be occurring in secondary or tertiary destinations in close proximity to many corporate offices, manufacturing plants and research labs. At the same time, however, first-tier destinations might be the development sites of choice, considering the high percentage of transient travelers that extended stay properties--particularly at the upscale property level--are attracting. These first-tier destinations might entail downtown locations or the close-in suburbs that surround them.

For travel buyers in the midst of putting together their 2001 hotel programs, the shortage of hotel rooms in many markets overall has made extended stay a more appealing option than it might have been in less prosperous times. Especially in markets where buyers find they require additional coverage, extended stay properties often can provide this extra cushion in a cost-effective way.

As extended stay properties attract more transient business, the lines of distinction between the segments begin to blur. In fact, a fair amount of business travel today is for stays that last longer than one or two nights (the usual definition of pure transient), but not as long as five nights or longer, which is the usual definition of extended stay. The latter would be the natural choice for the extended stay properties on a buyer's hotel program in a given destination.

At the same time, many extended stay visits are for a month or two or longer. This explains why many extended stay brands stress the residential aspect of their properties.

Buyers whose programs are large enough to have national account status, meanwhile, will find their national account representatives at multi-brand companies, such as Marriott International, Hilton Hotels Corp. and Bass Hotels & Resorts, eager to negotiate on behalf of their extended stay brand (or brands) along with their limited and full service brands. Their strategy is to always capture as much of an account's market share in a given market as possible, regardless of price point or segment.

At Marriott, the extended stay brands are Residence Inn and TownePlace Suites, with Residence Inn occupying an upscale price niche and TownePlace Suites covering the midprice ground. At Hilton, it's Homewood Suites and at Bass, it's Staybridge Suites.

According to BTN's survey, the 13 extended stay brands opened 115 new U.S. properties through August of this year. The vast majority were new builds as opposed to reflaggings or conversion of existing non-hotel structures.

The average number of rooms/suites in those 115 hotels was 108. Regarding room count, there's some variability, which skews these results to some degree. The average number of rooms at a Hawthorn Suites, for example, is 87, while the average number at a Residence Inn is 132. Yet, these numbers can be deceptive because it depends on how individual brands choose to define studio, one-bedroom and two-bedroom room types.

Likewise, the actual pace of development varied widely. For example, three brands--Crossland Economy Studios, Homestead Village Guest Studios and Wellesley Inn & Suites--didn't open any new properties.

At the opposite end of the scale, some brands were much more productive during the eight-month period. TownePlace Suites, for example, opened 15 hotels during the period, while Extended Stay America Efficiency Studios launched 16 and Residence Inn debuted 22. The champion, however, was Hawthorn Suites, a unit of U.S. Franchise Systems, which opened 33--slightly more than one a week.

"We work closely with the developers, who are franchisees, in determining where actual development will take place," said Steve Hymans, Hawthorn vice president of brand marketing. "It takes anywhere from 12 to 18 months to get a project built, including almost 12 months for construction, so it's hard to pinpoint a schedule for openings too far in advance." Size also varies. "The number of rooms in a project varies, depending on the depth of the particular market, land specifications, zoning and other factors," Hymans added.

Unlike other brands, Hawthorn Suites doesn't have a prototype for new builds that projects must adhere to. "There are certain requirements, such as a mix of studio, one-bedroom and two-bedroom/two-bath suites, that are a prerequisite for any Hawthorn Suite," Hymans said. "Similarly, there are certain service standards that must be met ranging from the availability of a hot breakfast to an onsite convenience store. But beyond that, the outside of one building may look different from the exterior of another. After all, certain exteriors would be inappropriate for certain markets."

In terms of geographic distribution, the 13 hotel companies opened extended stay properties in 33 states and the District of Columbia. California and Texas were the most popular states for new properties; eight opened in each. In California, Extended Stay Efficiency Studios launched four of those eight properties in the period single-handedly, while in Texas, Hawthorn Suites debuted five of the eight, two of which were in Houston.

Florida and Colorado were the next most popular states for new development with seven each. In Florida, Residence Inn opened three properties during the period, while Extended Stay America Efficiency Studios opened two. In Colorado, TownePlace Suites had two openings, both of which were in Denver, while Residence Inn opened two as well, one in Denver and one in Boulder.

Not surprisingly from a developer's point of view, occupancy rates in these states for all type of hotels have equaled or surpassed U.S. lodging industry occupancy rates as tracked by Smith Travel Research. This would encourage hotel development across the board, including the extended stay category. Yet as hotel development accelerates generally, developers typically look for segments where substantial unmet need still exists. Relatively speaking, this would benefit a niche category, such as extended stay in particular.

In July, for example, the year-to-date occupancy rate for the country was 64.7 percent, up 0.6 percent from the previous year. California, by contrast, had an occupancy rate in July year-to-date of 72.2 percent, up 4.5 percent over the prior year. The same success story applied in Florida, which had year-to-date occupancies in July of 71.2 percent, up 0.6 percent over last year. Occupancy rates in Texas and Colorado, meanwhile, were closer to the national average.

Such states as California, Texas, Florida and Colorado also outpaced the nation when it came to population growth. According to the Census Bureau data, the nation's population grew by 9.7 percent from 1990 to 1999. Yet, the South's population grew by 13.7 percent and the West's population by 15.7 percent. Texas, in particular, was a standout, growing by 18 percent.

Based on the survey, at the city level, Charlotte, N.C., and Denver share the distinction of being the nation's most popular locations for new extended stay properties. Four new hotels opened in each city within the period.

Though, as is often the case with destinations, a single market actually can be comprised of a number of sub-markets, each of which has its own profile and customer base. Staybridge Suites by Holiday Inn and TownePlace Suites by Marriott, for example, each opened in Charlotte in the Arrowwood area, while Hawthorn Suites opened in Charlotte/Pineville and Homewood Suites by Hilton at the Charlotte Airport in what is really Coliseum, N.C. Similarly, each of the four Denver properties was in a different section of the city.

Right on the heels of Charlotte and Denver, five cities were the site of choice for three new extended stay properties: Atlanta; Columbus, Ohio; Hartford, Conn.; Houston and Orlando.

"Demand can be great enough in such cities as Houston and Atlanta to warrant a chain opening up more than one extended stay hotel," said Hawthorn Suites' Hymans. "In other words, these cities are submarketed enough to be able to support multiple units."

For the individual hotels involved, there can be a marketing advantage that comes with critical mass. "The hotels like there to be multiple properties in a market flying the same flag because it builds brand recognition," Hymans said. "Franchisees will even get together and undertake joint marketing programs."

For the travel buyer, it's an advantage to have an extended stay property in your hotel program when that brand has multiple properties in a market because availability is much less of an issue. Compliance also can be easier to achieve because travelers need only keep the name of that one chain in mind when they're in that city.

With its two distinct extended stay brands, Marriott faces the potential risk of one brand cannibalizing the other in a given market. During the period of the survey, for example, Residence Inn opened a property in the Park Meadow/ Englewood section of Denver, while its sister brand, TownePlace Suites debuted properties at Denver Southwest and Denver Tech Center.

Marriott brand managers, however, said the fear had largely proven unfounded. "Each of our brands--not only the two extended stay brands, but the brands generally--has its own clearly-defined market segmentation," said Erika Alexander, brand vice president for TownePlace Suites. "So even when one brand hotel is in close proximity to another brand's hotel, they both do well. In fact, together they often bring more business to the market."


<B>Close To Clients</B>

Proximity to large corporate clients also was not lost on the developers of extended stay properties. This would be true of business hotels in any lodging segment, but it's especially true of extended stay properties because so many of their guests are on long-term assignments of one kind or another with local corporations, or they're in the process of relocating to work at a company's facilities nearby.

Summerfield Suites by Wyndham, for example, opened two new properties during the period, one in Westchester, N.Y., the other in Plymouth Meeting, Pa. The Westchester property is one mile from Texaco headquarters, two miles from an IBM facility and four miles from Kraft Foods, a division of Philip Morris. The Plymouth Meeting site, meanwhile, is close by Unisys and Merck facilities. Likewise, the Hawthorn Suites property in the Highway 249 section of Houston sits near a Compaq Computer facility.

"We've always had a tradition of positioning our properties close to the premises of Fortune 500 companies," said Robert Burg, who is senior vice president of operations at Summerfield Suites, citing properties in Belmont, Calif., at the doorstep of Oracle headquarters, and in Florham Park, N.J., near AT&T. "Certainly, it makes sense to be close to your customers. But for travelers, it's often a matter of convenience, especially if they're going to be living there for two months or longer. They're likely to be unfamiliar with the area when they arrive and, since they tend to work long hours, they prefer to be close to the office."

A popular location for Summerfield Suites is right inside the commercial office park where the corporate client is based. "The corporations like having us there," Burg said. "We become a known quantity where they're comfortable housing many of their people."

Typically, guests include customers of the corporations at these properties as well as employees. "We've found that technology companies especially will need to bring in customers for long-term training programs to learn to use the new systems," he said.

To get a sense of how the cities involved feel about new extended stay hotels coming into their communities, BTN spoke with two convention and visitors bureaus in very different destinations. San Jose, Calif., has become a very desirable destination--and one of the country's tightest hotel markets--because it is home to Silicon Valley. Norfolk, Va., on the other hand, is an up-and-coming second-tier destination, much of whose business travel is related to its U.S. defense industry/military installations.

"Our goal is to be able to offer business travelers a healthy mix of hotels that would cover different segments and price points, including extended stay," said Daniel Fenton, interim president and CEO of the San Jose CVB. One of the 13 brands in the survey, Candlewood Suites, opened an extended stay property in neighboring Santa Clara, Calif., one of nine it opened in the period.

Three of the four hotel districts of Norfolk attract business properties, again including extended stay. "You want to provide a balanced hotel portfolio to make sure you meet the expectations of all types of travelers," said Sharon Blazer, vice president of marketing for the Norfolk CVB.

This is even more true than it might have been five years ago because so many more business travelers are looking to work in their hotel rooms today.

"Consequently, you want to be sure you have enough hotels that offer amenities, such as high-speed Internet access, that business travelers depend on," said Lacy Gibson, the Norfolk CVB's director of sales. "Extended stay hotels would be one of these." Hawthorn Suites opened a property in Norfolk this year.

Extended stay properties are valued particularly in San Jose, because many of the high-tech companies based there make considerable use of long-term assignments. "It ties into high-tech companies' need to provide their employees with ongoing training," Fenton said. "Often this entails employees coming in to the headquarters from other offices in the country and around the world for weeks at a time. In the same way, training courses frequently are taught by outside consultants who also need to be housed while they're here."

Silicon Valley's chronic housing shortage contributes to the need for extended stay properties as well, Fenton said.

"Because these companies have expanded so quickly, employees being recruited to the area can have a hard time finding permanent housing," he said. "Companies will put them up at hotels such as extended stay for what seems like longer periods of time than ever before. In fact, some seem to permit especially valued employees to live in them indefinitely."

Many of the 13 extended stay brands told BTN their aggressive development plans would continue for the remainder of the year and into 2001 and 2002. At Staybridge Suites, for example, seven properties opened in the first eight months of the year, with 13 scheduled to open in the four months remaining.

According to Jim Anhut, senior vice president of Staybridge, 24 more properties presently are under construction. "As for 2001 and 2002, the brand's growth rate is strong with a robust pipeline that includes nearly 60 more properties," he said.

There can be a downside to expanding too quickly, Anhut said. "Staybridge was only established in 1997, so it takes a while until you have perfected the model of what you are trying to do in the marketplace," he said. "So much of the success of a brand depends on meeting and then surpassing customer expectations that you need to proceed cautiously at first."

Anhut also acknowledged that the extended stay marketplace is quite crowded right now. "Consequently, when you're building a brand name from the ground up, you want to be sure you create positive name recognition."

MainStay Suites, meanwhile, the extended stay brand of Choice Hotels International, opened five properties in the first part of the year and expects to launch six more in the remainder. Similarly, Homewood Suites by Hilton opened five properties in the first part of the year and has eight openings planned for September through December.

Other brands, including Hawthorn Suites, plan to throttle down their development engines a bit through the end of the year. Finding the torrid pace of the first eight months hard to sustain, Hawthorn Suites only expects to open 12 to 16 additional properties during the remainder. And Candlewood Suites, which opened nine properties through August, only has plans for six more openings by year-end.

A special situation exists at Homestead Village Guest Suites. While no new properties are scheduled to come online through 2000, the brand continues on its own growth strategy.

Expanding existing hotels happens occasionally in the full-service sector, but is a fairly rare occurrence in the extended stay segment. Homestead Village, however, is in the midst of expanding its Milpitas, Calif., property, adding 42 rooms to the existing 118. The new building is expected to be completed in mid-2001.

"Milpitas is in the thriving San Francisco Bay area," said Gary DeLapp, Homestead's managing director, "and demand from business travelers warranted the expansion."

Homestead Village also is experimenting with a new suite configuration. While the studio suite concept remains its primary room type, Homestead last month announced that it has begun testing two-room suites, adding 10 suites of the new configuration in a number of existing properties around the country.