Extended Stay: Long-Term Lodging Experiences Rise In Demand, Rate

In a generally bleak year for the U.S. hotel industry, the extended stay segment in 2001 performed against the odds, reporting an increase in demand and average rate, according to a recent industry survey. However, a number of corporate travel buyers this spring said they continued to have trouble accurately tracking their travelers' hotel stays. Hence, extended stay usage wasn't as high as it might have been.

Business travel consultants, meanwhile, noted that the current weak economy played to the extended stay sector's strengths in many ways, but extended stay still was as vulnerable to the economic downturn as the other lodging industry components.

"Extended stay hotels generally performed well during the year," said Mark Skinner, a partner in The Highland Group, an Atlanta-based consulting firm that conducted the annual survey. "Extended stay demand was up in 2001 over 2000, while overall hotel demand fell. Average rate for extended stay hotels also rose during the year, in contrast to hotel industry trends."

Since an extended stay typically is defined as five nights or longer, extended stay properties provide accommodations that are more residential in feel than traditional hotels and fewer services are provided onsite. Pricing is another point of distinction, with rates decreasing according to the length of stay.

Skinner attributed the extended stay segment's relatively strong performance to two factors: the category's niche market position and its strong price to value proposition. "Aided by branding and many of the chains' national distribution, new sources of demand discovered extended stay hotels," he said. "Extended stay hotels are now part of the lodging supply in most major and many smaller markets." At the same time, Skinner acknowledged that many U.S. markets remain underserved, presenting opportunities for further development of extended stay properties.

However, Sean Curley, corporate travel associate for Ford Motor Co., said it can be difficult to assess extended stay needs with any accuracy.

"It's one of the reasons why it's so important to get detailed tracking data from the hotels in your program. Otherwise, it's hard to know how many travelers are actually staying on a trip for an extended number of nights," Curley said. "If the number is great enough, you might need to add an extended stay property to your program in that market, or if you've already got one, you might need to add another."

"Many buyers still don't know what use of extended stay they have," echoed Grant Kaplan, a principal in Consulting Strategies in Houston.

Travelers on long-term training or consulting assignments, or in the midst of a relocation, are the classic guests of extended stay hotels, so many buyers only require these facilities near their corporate headquarters. "We understand the extended stay concept and our travelers have no trouble with it, but our needs are still limited," said Donna Reidy, manager of travel services for Ryder. "In fact, we have only one extended stay property presently in our program, and it's in Miami, where we are based."

The need in these locations is clear and allows buyers to establish a good working relationship with the local property. "This can be useful for the buyer down the road if availability ever becomes an issue," Kaplan said.

In light of the current economic downturn, buyers also have been using extended stay properties for transient stays because of their lower cost structure. "We'll use them this way when it makes economic sense in a market like San Diego, where we're based and where we bring a lot of room nights, both transient and extended stay," said Sue Speed, manager of administration for technology company Accelrys. "The pricing is what really works for us. For practically the same rate as a regular hotel, travelers get a larger room with a kitchenette, which they like."

According to buyers, as long as the economy stays soft, this usage should continue to grow.

"Extended stay properties are simply a different cost structure and that appeals to us," Ford's Curley said.

Buyers remain under pressure in 2002 to show whatever cost savings they can. "Corporations are trying harder than ever to be creative in containing costs, so they're going to be responsive to extended stay pricing whenever it makes sense," said Kim Kassel, director of hotel programs at TQ3 Maritz Travel Solutions in St. Louis.

Similarly, while buyers are scaling back their programs in many cities in an effort to drive volume to fewer hotels, they still may want to include an extended stay property. "If there's any question as to exactly how much extended stay usage they'll have, it makes sense to include one such property, just to leave themselves an option," said Ruth Philpott, manager of hotel programs for American Express Consulting Services in Parsippany, N.J.

Another manifestation of the current economic downturn is that regular business hotels are hungry for business and, therefore, prepared to be competitive on rate. "They're much more flexible, which means they're more willing to give us an extended stay rate than they would have been previously," said Connie Cirillo Freeman, director of corporate procurement and travel services for Pitney Bowes in Stamford, Conn.

Traditional lines have been crossed on both the extended stay and transient hotel sides of the industry.

"It's a paradox: Because of the economy, transient hotels are much more open to extended stay travelers—at an extended stay rate—while extended stay properties are opening their doors much more to transient travelers," said Dan Leh, director of hotel solutions for North America at Carlson Wagonlit Travel in Minneapolis.

Booking transient business, though, can be a double-edge sword for extended stay properties. "It's risky for them because it really runs counter to the model they're built on," added David Witham, London-based CWT vice president of hotel and car relations worldwide. "Say they book a room for a Tuesday night—which would be a transient stay—because they want the business, but later they get a call for a room for an entire week—a true extended stay booking—but they have to turn it down because the room isn't available on the Tuesday." Plus, the property incurs additional expenses. "The hotel has to make the room up Wednesday morning, which is an added cost because most extended stay brands don't usually come with daily housekeeping," Witham said.

As it happens, the relocation piece of extended stay travel isn't always the travel managers' job. Many companies place the responsibility elsewhere. Pitney Bowes is an example. "Human resources handles it," Freeman said.

In many cases, the department responsible for relocations doesn't communicate with the travel department.

"They don't talk to each other as well as they should," according to Kaplan. "In some ways, it's similar to the lack of communication internally between the meeting planning and transient travel functions."

However, at many companies, this is changing. "There's a trend toward consolidating all lodging decisions in the hands of the travel buyer," Leh said. "The negotiations certainly aren't within a human resources manager's area of expertise. Besides, in this economy, companies realize they can better leverage their buying power by negotiating for all of their needs at one time."



NBTA Adds Ext. Stay In E-RFP

Last year's bidding season for negotiated hotel rates was somewhat of a milestone for the extended stay sector. "It was the first year the standard electronic request for proposal format developed by the National Business Travel Association included a specific module for extended stay," said Sean Shelton, CEO of Uversa International in Fairfax, Va., which provided technical support to the NBTA hotel committee. The module was intended for true extended stay business, rather than the transient bookings that might end up at such a property, because the pricing questions are different. Buyers would submit a regular RFP to those same properties for the transient nights.

Shelton said the module received a fair amount of usage, considering that it and the entire streamlined modular approach were new. "The committee hasn't made any significant changes for the 2003 season, so we expect to get more first-time users, who may feel more comfortable this year, plus repeat users from last time," he said.

A technology tool for bidding hotels that is generating controversy this year is reverse online auctions (BTN, May 13). Providers of the technology this month said the tools particularly are well-suited for bidding on extended stay properties. One of the underlying concerns with auctions has been that the hotels invited to participate in a given session are not all comparable, thereby giving one or more of the participants a pricing advantage.

"Extended stay properties are in a category by themselves within a market, so it would be easy to break them out separately for the purposes of an auction," said David Clevenger, market development manager for Freemarkets, a technology vendor based in Pittsburgh. "At the same time, they vary by price point, so the buyer would need to be sure that amenities and other service levels, as well as price, were figured into the total value of the bids."

An industry report prepared by The Highland Group spelled out why the extended stay segment flourished in 2001, across all price points, when other segments of the lodging industry faltered. Demand for extended stay hotels increased by 4 percent in 2001, while total U.S. hotel demand declined by almost the same amount, according to Highland's Mark Skinner.

"Demand growth for extended stay hotels is well above the U.S. hotel average," Skinner said, "indicating that extended stay hotels have not yet reached national market saturation."

The occupancy picture was equally rosy. Granted, extended stay occupancy rates for 2001 fell from their high in 2000, which was a banner year. But the decline was more modest than the drop felt by the industry generally. "Extended stay hotel average occupancy fell to 73.7 percent in 2001, but kept a more than 13 percentage point premium over overall U.S. hotel average occupancy," Skinner said. Full-year 2001 U.S. industry occupancy was 60.1 percent, according to Smith Travel Research, a Hendersonville, Tenn., firm that tracks lodging industry performance.

In terms of overall inventory, extended stay properties added 20,000 rooms during the year, which represented an increase in supply of almost 10 percent. By contrast, this was more than five times the rate of growth in the total U.S. hotel supply. Unlike the overall financing picture, capital continued to be available for select extended stay developments.

Skinner estimated that 12,000 extended stay rooms were under construction at year-end 2001. Compared with the rest of the industry, the sector remains immune from fluctuations in the economy.

"Demand for the product grew when the economy contracted and can be expected to expand further when the economy grows again," he said. "Consequently, the outlook for extended stay hotels is good." In addition, supply growth is slowing, which should translate into occupancy increasing further.