Hotel companies, such as Hilton, Extended Stay Hotels, Choice, Hyatt and Starwood, are introducing new extended stay offerings through acquisitions and new development to capture a share in a relatively untapped market.
According to The Highland Group, a hotel consulting group that specializes in extended stay properties, the extended stay sector in 2005 proliferated by 14,000 rooms to 257,255 total—an increase of 5.7 percent over 2004. It forecasted supply growth would increase between 5 percent and 6 percent in 2006. The robust growth in the extended stay category coincides with The Highland Group's estimate that the extended stay growth rate was 14 times greater than overall hotel growth.
Remarkably, demand still is outpacing supply. Demand was up 8.2 percent in 2005 from the year before, resulting in an occupancy rate of 76.2 percent—the highest since 2000, which was the year before the industry downturn. The average daily rate, the highest being New York's at $119, also was up 7.2 percent in 2005. This growth produced an 11.1 percent surge in revenue per available room, the strongest ever recorded by The Highland Group.
While development is intensifying across the board, the greatest portion of it is taking place in the upscale extended stay segment. "Mostly, new construction and supply growth is the strongest in the upscale segment and it will be so for the next couple of years," said Mark Skinner, a Highland Group partner.
Along with further development, many upscale brands are improving the amenities offered too, and these upgrades are affecting the other extended stay segments. "The trend of upgraded amenities in the upscale segment has already begun—the better bedding, up-to-date electronics and upgraded breakfasts," Skinner said. "These upgrades are creating a trickle-down effect, and the midprice and economy segments are following suit."
Typically, extended stay properties are known for their suburban locales. However, there has been a growing move to build in downtown areas. "You may see growth in the urban areas, as the trend is to go into these areas because many downtown areas have seen revitalization, bringing people back," said Skinner. "As that happens, you have renewed lodging there."
Echoing Skinner, Homewood Suites by Hilton's senior vice president of brand management, Rebecca Wyatt, who assumed the position on March 6 after Jim Holthouser moved to Hilton's Embassy Suites brand in the same capacity, said the brand is fielding frequent inquiries by developers who want to build in urban areas. "There is huge demand in urban markets for this type of product," said Wyatt, adding that a property in downtown Indianapolis currently is being converted to a Homewood. Currently, there are 170 Homewood Suites open. Wyatt said 40 properties would open this year, with 110 either approved or under construction.
A longtime player in the extended stay market, Extended Stay Hotels—with more than 650 properties—aggressively will develop its brand while consolidating other chains it has acquired. "Our focus has been on the deluxe brand, so we can position it at a higher price point than our core brand, Extended Stay America," said Gary DeLapp, president and CEO of HVM LLC, which operates Extended Stay Hotels. Extended Stay Deluxe properties will offer spacious rooms with DVD players and DVD-rental kiosks in lobbies. Extended Stay Deluxe also is beta-testing its Daybreak Deluxe breakfast in Orlando and will extend it throughout the system once the kinks are hammered out.
DeLapp said the Extended Stay Deluxe brand is being positioned to compete with TownePlace by Marriott and InterContinental's Candlewood Suites in the upscale extended stay segment. There are 80 Extended Stay Deluxe properties open and DeLapp said that there would be 100 operating by June.
Extended Stay Hotels also reflagged 16 Sierra Suites properties it acquired last year
(BTNonline, May 12, 2005), and 30 Wellesley Inn & Suites hotels it bought in 2004
(BTN, Sept. 6, 2004), under the Extended Stay Deluxe umbrella. The hotel company also plans to place either the Extended Stay Deluxe or ESA tag on its Homestead Suites brand. Another brand, Crossland Studios, will be given a brand-new designation: Extended Stay Economy. "When it's all said and done, we envision three brands for the company: Extended Stay Economy, America and Deluxe," said DeLapp.
Choice Hotels International last year augmented its extended stay catalogue, which already included MainStay Suites, when it bought the Suburban Extended Stay Hotels chain last year, giving them position in the lower tier of the extended stay segment.
"Prior to our acquisition, Suburban was already the largest extended stay economy chain that one could franchise, so we are very delighted with the acquisition," said Ralph Thiergart, Choice's senior director of extended stay operations & strategy. At the end of 2005, there were 65 Suburban properties operating with 11 under development. Choice will refurbish furniture, fixtures and equipment and expand westward. "The majority are distributed right now in the Southeast and Midatlantic, while the West has not been as strong," said Thiergart. "With Choice's power behind it, we feel that there are some wide-open territories out West. Our plans are to develop nationwide, with particular emphasis on western regions."
Global Hyatt joined the upper-upscale extended stay segment with its January 2005 acquisition of Summerfield Suites. The company will reflag it with the Hyatt name attached, positioning it against Hilton's Homewood Suites and Marriott's Residence Inn. The move gives Hyatt another upper-upscale extended stay offering along with its Hawthorn Suites brand.
"We have a lot of equity in the brand and we plan on spending our money to bring the hotels up to the next level," said Jim Abrahamson, Hyatt's senior vice president of acquisitions and development. "When we look at Homewood Suites and Residence Inn, they're products that were launched in the 1980s and their prototypes haven't changed much. We think there is real opportunity to create some real break-through designs and layouts for the next generation of Summerfield Suites."
Hotel chains' extended stay expansion plans show how lucrative and undersupplied the sector is, while indicators suggest that demand growth will continue. Starwood Hotels & Resorts is set to enter the extended stay mix and capitalize on the burgeoning growth. Fresh off the introduction of its new lifestyle brand, Aloft
(BTN, March 20), Starwood announced its foray into the extended stay category last summer, and said the product will fly the Westin flag. An extended stay product would give Starwood a foothold in a sector in which it previously didn't participate, further rounding out its portfolio.
Behind the extended stay sector's growth is a strengthening economy that is loosening up business travel restraints, coupled with more travelers discovering the benefits of extended stay properties. "Customers are more informed and understand that there are differences between types of extended stay hotels that exist," said Choice's Thiergart. "Business owners sending their employees on the road understand the value."