Extended-stay hotels defy cycle but showing stress
 
Extended-stay hotels defy cycle but showing stress
17 APRIL 2018 7:42 AM

Extended-stay hotels have continued to perform better than the overall U.S. hotel industry, but some domestic markets are showing declines.

ATLANTA—Contrary to the latter stages of a typical hotel development cycle, all performance metrics for extended-stay hotels started accelerating in Q3 2017, and a revenue-per-available-room growth trend trajectory like four years ago seems to be established.

Some of this was due to a boost from hurricanes, but upticks in the overall hotel industry metrics in Q4 2017 and early 2018 suggest the growth is more fundamental. However, some markets will not be enjoying the party this year.

Eight years after the trough of 2009, increasing room supply growth and record numbers of new extended-stay rooms opening would usually cause occupancy to decline, like what occurred in late 2015 and early 2016.

However, by mid-2017, extended-stay occupancy began a clear rising trend, which the overall hotel industry followed as the end of the year approached.

With occupancy staying near record highs, extended-stay average-daily-rate growth started accelerating early in 2017 and gained momentum later in the year.

Overall hotel ADR growth decelerated for most of 2017 but turned sharply upward in Q4. Early indications in 2018 are that overall ADR growth is close to the 2.4% gain reported in Q4.

The chart following shows recent extended-stay hotel RevPAR trends like three years ago and a significant uptick in overall hotel RevPAR growth at the end of 2017.

STR data through February 2018 indicates that overall hotel RevPAR growth is accelerating and points to another good year for the industry. It also signals another good year for the extended-stay segment, as the widening gap between most extended-stay hotel performance metrics and the overall hotel market cannot continue indefinitely. (STR is the parent company of Hotel News Now.)

Extended-stay hotel’s 4.7% RevPAR gain in 2017 compared to 2016 accelerated from 3.3% growth in the previous year. However, two-thirds of the nation’s 100 largest hotel markets reported below-average RevPAR growth, and extended-stay hotel RevPAR declined in more markets almost one quarter in 2017. The largest declines are shown below:

Growth in room supply was a major contributor to the RevPAR decline in the 24 MSAs. The 11.3% average growth in supply from 2016 to 2017 in these MSAs was about 50% greater than the overall MSA average. Extended-stay hotel occupancy declined in more than 80% of the markets and more than 70% saw ADR decline. Double-digit extended-stay supply growth forecasts in more than half of the largest hotel markets in 2018 are not necessarily a concern, as most markets experiencing the same in 2017 saw RevPAR rise, not fall. However, it could present a significant headwind in markets already seeing falling occupancy, ADR or both.

The following table shows MSAs with at least 1,000 extended-stay hotel rooms, in which extended-stay hotel RevPAR declined in 2017 and projected supply growth in 2018 is at least 10%.

The highest projected supply increase is in Riverside-San Bernardino, California. At first glance, the expected 43% supply increase following a 4.4% decrease in extended-stay hotel RevPAR signals a very difficult 2018 is imminent. However, while it could take time to absorb the new rooms, the market is underserved by extended-stay hotels. Only 4.6% of Riverside-San Bernardino hotel room supply is extended-stay compared to more than 8% nationally. Even after the new rooms open, the proportion of extended-stay rooms will be less than the national average. The same applies to the New York-Northern New Jersey MSA. Minneapolis-St. Paul, Minnesota, also looks relatively well-placed to absorb the new rooms. Conversely, Tulsa, Oklahoma; Louisville, Kentucky; Columbia, South Carolina; Des Moines, Iowa; and Cleveland, Ohio, look set for a second year of extended-stay hotel RevPAR decline.

Mark Skinner, ISHC is a partner with The Highland Group. Tel (404) 872 4631 www.highland-group.net

The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.

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