Extended-stay: Report shows segment primed to perform

In 2010, extended-stay hotel room demand and room revenue hit record highs, while supply growth fell to its lowest level in about 20 years, according to “The 2011 U.S. Extended-Stay Lodging Market” by The Highland Group.Room supply rose 2.2 percent in 2010, while room demand and room revenue reached record levels of greater than 13 percent, which pushed extended-stay occupancy above 72 percent, a 14-percentage-point premium above the overall hotel industry.

Extended-stay rooms under construction fell to a new low in 2010 and should decline further in 2011, giving the segment the potential for strong revenue-per-available-room growth. Extended-stay hotel RevPAR rose 10.3 percent in the fourth quarter of 2010 compared to the same period in 2009. Average rates for extended-stay hotels were down 2 percent for the year in 2010 but rose more than 3 percent in the fourth quarter.
Extended-stay hotels continue to generate gross operating profits above industry averages. The three tiers of extended-stay hotels, economy, midprice and upscale, reported average gross operating profits of 55 percent, 48 percent and 48 percent above the average, respectively.
“The decline to lower levels of supply growth will continue this year and next year,” said Mark Skinner, partner at The Highland Group.
He said extended-stay hotels still make up less than 7 percent of total rooms in the U.S.
“It’s still a niche, but growing,” he said.

Supply has always grown more rapidly in extended-stay than in the overall hotel industry due to the smaller base of units, he said. But this segment is rife with new sources of demand, he said. For example, not all travelers understand the benefits of extended-stay, such as the kitchenette in the room or suite, which can save money on meals, Skinner said. “And, the longer you stay, the lower the rate,” he said.

Katie Tyson, VP, brand management, Residence Inn by Marriott, said business is picking up for the brand.

“2010 was the initial recovery year for extended-stay travel, with marked improvements in revenue growth,” she said. “2011 promises to be an even better year as we’re seeing increased travel from extended-stay business travelers, such as consultants, IT professionals and government contractors, reinvigorated by the country’s strong economic outlook.”

Residence Inn focused on leisure as well as business travelers during the recession.

“The ability to cast a wider net has allowed Residence Inn to maintain a strong position during the recession,” Tyson said.

Following extensive research, the hotel recently rolled out a lobby redesign. Bill Hall, brand senior VP, Hawthorn Suites by Wyndham, said demand is increasing across the segment. “During the economic downturn, new room supply had dropped to one of its lowest levels,” he said. “We are encouraged by the improvements we saw in 2010 and are optimistic about the future.

“Further it is important to reach several target markets, like government consultants, relocations and medical personnel. This requires creating different marketing vehicles and customized messaging.”

Hawthorn Suites provides its franchisees with these marketing tools as well as sales training, Hall said.

Rob Radomski, VP of global brand management for InterContinental Hotels Group’s Staybridge and Candlewood extended-stay brands, said the company had record demand levels for both brands in 2010.”

He said the challenge is gaining back the average daily rate, which was eroded by the recession primarily because of the loss of corporate accounts.

“We had to find business in other places,” he said, noting they found it in the lower-price segment, such as from insurance and construction companies and government agencies.

IHG trains its salespeople as well as owners, who receive a two-day session to learn how to better leverage the extended-stay model. Owners learn how to build shorter-term stays around longer-term ones.

IHG has launched promotions to support both brands.

Candlewood signed a multiyear deal with the National Hot Rod Assn. Candlewood is pegged as the “Preferred Hotel of the NHRA.”
Staybridge Suites unveiled two new interior design schemes, the results of a partnership with the Savannah College of Art and Design.
Another Savannah College design class developed new room interiors for Candlewood, which will roll out in the third quarter.

Starwood Hotels & Resorts Worldwide had an eye on sustainability when it launched its only extended-stay brand, Element Hotels, according to Paige Francis, VP, global brand management for Starwood’s Aloft, Element and Four Points by Sheraton brands.
There are nine Elements. Each room features a kitchenette, and there are in-house washing machines.

“We saw a real opportunity to truly reinvent the segment and bring a chic, beautifully designed and modernized offering to market,” Francis said.