National Report – Along with other industry segments in this phase of the lodging cycle, the extended-stay category is showing healthy momentum heading into 2015. Analysts foresee revenue per available room growth this year increasing comfortably above the rate of inflation with occupancy, average daily rate and construction of new rooms up as well through 2016-2017 and quite possibly beyond.
Much of the good news is attributable to two trends, which are also benefitting other industry segments at similar price points. First is the move into urban markets from extended-stay’s traditional suburban and highway areas of strength. A discernible trend for the past few years, the level of development activity has been accelerating.
Second has been the growing popularity of dual-brand projects, where more times than not, one of the two brands involved is extended-stay, drawn by the segment’s efficient operating model.
Meanwhile, a number of new, small players continue to flourish besides such industry stalwarts in the category as Marriott International’s Residence Inn and TownePlace Suites, Hilton Worldwide’s Homewood Suites and Home2 Suites and IHG’s Staybridge Suites and Candlewood Suites.
RevPAR growth for the U.S. extended-stay segment is expected to increase more than the annual rate of inflation, which for the 12 months ending in August stood at 1.7 percent, according to consulting firm The Highland Group, which specializes in tracking extended-stay performance.
Occupancy in the second quarter of the year reached 80.3 percent, up 2.7 percent over the same period a year ago. Supply growth is always a concern. But with a relatively healthy 30,000 new extended-stay rooms estimated to come on line in the next two years, Highland Group partner Mark Skinner sees little cause for concern, given that demand growth is also increasing.
“New supply is coming beyond the 30,000, but it’s taking a long time to get here,” Skinner said. He sees a strong possibility the current lodging industry cycle will last beyond 2016.
The Homewood Suites that Hilton Worldwide opened in New York this summer is a recent example of the industry’s push to create a presence for extended-stay properties in prime downtown locations. It’s the first Homewood in Manhattan.
The 25-year-old brand has already opened downtown locations in Dallas, Denver and Nashville since 2013. Next up are properties in downtown Miami and Chicago.
“New York is still a milestone for us, given the high barriers to entry here and the high cost of land and construction,” said Bill Duncan, the brand’s global head.
“But we knew there was a lot of untapped demand for upscale extended-stay lodging in the city. Plus—this being New York—it’s a billboard hotel that will be good for showing off what we can do,” Duncan said.
Located on West 37th St. in the Times Square neighborhood, the 22-story hotel has 293 suites, making it the largest of the 300-plus Homewoods in the system. However, a large percentage of the suites are studio suites, compared to one-bedroom suites, reflecting the high land cost. The studio suite may be larger than a regular guestroom in the market, but still not have the square footage of a suite with a separate bedroom.
Some of the same market realities were behind Marriott International’s decision to move forward with a dual-brand 174-room Courtyard and 219-suite Residence Inn in the L.A. Live complex in downtown Los Angeles also this summer.
“Considering the high barriers to entrance and high construction costs, it made sense to put the two brands in one building and be able to target two types of travelers, each with its own needs in one building—the transient traveler at the Courtyard and the extended-stay traveler at the Residence Inn,” said Diane Mayer, Residence Inn VP and global brand manager.
As dual-brand projects have grown in popularity across the country, an extended-stay option is typically included for this reason, according to Skinner. “With the full kitchen, complimentary breakfast and evening reception—all extended-stay brand standards—not to mention their residential feel, the model tends to appeal to travelers who are booked for a stay that can last weeks or even months,” he said.
“In recent years, the Residence Inns we’ve opened have been much more sophisticated with more extensive facilities, including meeting space, than earlier generations of the almost 40-year-old brand. And this is especially true in our urban properties,” Mayer said.
As an example, she cited the RI Lounge in the new Los Angeles hotel. It incorporates the breakfast area, but includes seating areas where guests can relax, work or hold informal meetings with colleagues or visitors.
In addition, the hotel has a boardroom and ballroom divisible by three for more formal group functions, spaces available for use by Courtyard guests as well. Residence Inn presently has more than 650 hotels open worldwide.
Options Across Segments
By comparison, My Place Hotels of America and Extend a Suites Hotels are modest in distribution, but they still fill a critical niche in the extended-stay universe. Founded in 2011, My Place operates nine hotels in four Western states, while Extend a Suites, established in 2010, operates 11 properties in nine states, ranging from Ohio to Texas.
Unlike upscale brands such as Homewood and Residence Inn, My Place and Extend a Suites are economy brands that base their appeal, in large part, on their value proposition. The target market is families on driving vacations, independent business travelers and construction crews. Like economy lodging brands generally, both include assurances of safety and cleanliness in their brand promise.
Considering the optimistic growth projections for the extended-stay segment going forward, it’s not surprising that new brands—or new brand extensions—continue to be introduced.
Best Western International, for example, has been developing a new extended-stay prototype. While details, including the name, haven’t yet been disclosed, three deals have been signed with the first hotel scheduled to open in Alberta, Canada, late next year.