Extended Stay Costomers Outperform All Other Hotel Segments

While the U.S. hotel industry as a whole is enjoying healthy increases in occupancy and average daily room rates, extended stay hotels are the segment with the most to celebrate this year. In fact, times are so good that extended stay hotel companies, which to date have focused almost exclusively

According to a study recently released by the Highland Group, an Atlanta-based hospitality consulting and research company, extended stay hotels outperformed every other segment in the hotel industry during the first nine months of 2005, with the strongest gains made in the third quarter. Among Highland's findings:

• Daily room rates for extended stay hotels averaged $68.61 during the first three quarters of 2005, up 7.2 percent from the same period in 2004. Average daily rate at economy extended stay hotels was $30.87; midprice averaged $55.85; upscale averaged $102.77.


• Extended stay occupancy averaged 76.7 percent in the third quarter of 2005, the segment's highest level since 2000. By comparison, overall U.S. hotel occupancy averaged 64.5 percent. During the third quarter of 2005, extended stay average occupancy exceeded 80 percent.


• Demand is growing in the extended stay hotel sector faster than in the overall hotel industry. Extended-stay demand increased by 7.3 percent during the first three quarters of 2005 over the same period in 2004, while overall hotel demand grew by 3.0 percent. Demand growth for extended stay hotels is running at about twice the rate of supply growth.


• Extended stay hotel revenue per available room increased by 10.5 percent for the first three quarters of 2005, compared with the same period in 2004. Overall hotel RevPAR grew by 8 percent over the same period.

Part of the reason extended stay hotels are enjoying such success is that they are a true niche product, comprising just 5 percent to 6 percent of the overall hotel market, Highland Group partner Mark Skinner said. "What also helps them is that the length of stay is much longer, so they don't have the nights of soft occupancies that other types of hotels do," he said. "They don't have so many peaks and valleys."

Gary DeLapp, president of Extended Stay Hotels, which operates 670 hotels under five different brands, said the maturation of the extended stay segment also is a factor behind their growing popularity. "This segment is now 10 years old. Consumer awareness has taken time to build, but it has," he said. "It's been a lengthy learning process for consumers, but now they are more aware of our product."

Robert Mandelbaum, director of research information services for PKF Hospitality Research in Atlanta, credits improving economic trends. "This particular hotel sector is especially sensitive to the economy—when it's doing well, they do well," he said. "They need to have people coming in for seven, 14 and 30-day stays in order to perform well. There needs to be job growth and more job training and relocation going on. This is happening now, so these hotels are in a good situation."

Robert Radomski, vice president of brand management for Staybridge Suites, agreed, adding that outsourcing and downsizing trends especially have benefited extended stay hotels. "As a result, there are many more people working as consultants and independent contractors now—a whole new industry of specialized travelers," he said. "These people often stay at extended stay hotels."

At the same time, extended stay hotels, particularly upscale brands offering such amenities as swimming pools and free breakfasts, have started to catch on with the leisure market. "While the vast majority of people who stay at extended stay hotels are business travelers, it is the leisure travel segment that has been growing the fastest over the last five years," Highland's Skinner said. "In many cases, business travelers that have tried extended stay hotels are now using them for vacations."

While demand for extended stay hotels may be running ahead of supply, a construction building boom could alter the equation somewhat in the coming months. According to hospitality industry tracker Lodging Econometrics, 127 extended stay properties are expected to open in the United States by year-end, the highest rate of increase among any hotel segment. Inventory will increase by 6.5 percent.

"There are a lot of new hotels under construction, although some have been delayed by the hurricanes," said Skinner. "The first two quarters of this year will see demand staying higher than supply. The last two quarters could see supply a bit higher than demand, but this situation will not last long. It's hard to tell beyond that."

While the majority of extended stay hotels are concentrated in suburban locations in large U.S. metropolitan areas, the popularity of the segment is prompting companies to expand in other geographic locations, including overseas. "Most of our properties are in suburban drive-to locations, but a new trend is to open more properties in urban locations," said Bill Duncan, vice president of marketing and sales for Homewood Suites by Hilton, which is opening an average of three new properties each month.

Chains also are opening an increasing number of these new hotels both north and south of the border.

"We now have three hotels in Canada and another 10 are under development there," Duncan said. "We will also expand in Mexico. We're opening a hotel in Puebla this year and will open one early next year in Coahuila."

Homewood also is looking for sites in Europe. "We think the extended stay product will work worldwide," Duncan said. "The performance is so strong."

InterContinental Hotels Group, which operates the Staybridge Suites and Candlewood Suites extended stay brands, already is bringing the extended stay product to Europe.

The company, which launched Staybridge Suites UK last year, is beginning expansion in the United Kingdom with the opening of two Staybridge Suites properties late this year. Both new-build projects will be located in greater London. One will be a 134-room property in Brentford, while the other will be a 113-room property in South Bank.

According to Radomski, the company envisions long-term expansion in Europe, but is taking it slowly.

"Our strategy is to start with a small cluster of hotels close to the InterContinental offices in London," he said. "We will be able to show developers and operators how the concept works. It's a process that requires education. We need to introduce people to the nature of the business."

Both the Staybridge and Candlewood brands are expanding in Canada and Mexico. Candlewood currently has two properties in Canada and is looking for sites in Mexico, while Staybridge is developing a third property in Canada and recently opened one in Mexico. Extended Stay Hotels, which opened its first Canadian property in Ottawa last October, also has an eye out for more locations in Canada.

The potential is great for extended stay hotels outside the United States to perform well, according to Radomski.

"We know that there is a lot of extended-stay travel happening outside the United States, but these travelers are staying in traditional, full-service hotels," Radomski said. "It's the way it was in the United States before the development of extended stay hotels. The need is there."