Extended-stay hotels continue to remain popular among travelers needing more time and perhaps a little more room.
REPORT FROM THE U.S.—The U.S. hotel industry as a whole is coming to grips with new supply entering the market, diluting occupancy in many markets, but one segment sees its level of demand nearly on par with supply: extended-stay properties.
A recent report from The Highland Group outlines the continuing success of extended-stay properties. Room supply in Q3 2016 for extended-stay hotels increased 5.7% year over year and demand increased 5.5% for the same period. Occupancy has remained above 80%. While ADR growth rates have declined for the fifth consecutive quarter, quarterly room revenue surpassed $3 billion for the first time.
“Contrary to what you might believe in the political arena, there’s been good economic growth this year,” said Mark Skinner, partner at the Highland Group. “Demand has stayed fairly high, around the 5% mark, which is good. In the third quarter, it was a little bit higher than that. It’s almost kept pace with supply, which is encouraging.”
Why extended stay is succeeding
As the traveling public has become more aware of this segment, they are choosing to stay at extended-stay properties for an increasing number of reasons, said H. Mark Daley III, president and CEO of Generation Companies. They might be hosting family members for holidays, looking for greater control over their meals by having an in-room kitchen or possibly displaced by events such as Hurricane Matthew, he said.
“This is all in addition to the traditional use for extended-stay hotels by those on long-term project assignments or in between housing situations,” he said via email.
The tight correlation between extended-stay supply growth and extended-stay segment demand suggests that new supply is tapping into previously unmet demand for this product type, he said. The general public now has a much greater awareness of extended-stay brands and is choosing this lodging segment more frequently for short and long stays.
Midpriced and economy-level properties are still driving rates of about 4% to 5%, Skinner said. Economy properties have a lower rate of supply growth, he added, and the midpriced properties are in higher concentrated markets. Upscale extended-stay properties are a function of the strong supply growth in the segment that were strong for a couple of years and are now struggling to push rate like the rest of the industry, he said.
Travelers staying in various urban markets are enjoying the extended-stay products because the overall rooms are larger, giving them more living spaces, said Ben Perelmuter, SVP of operations at Aimbridge Hospitality. They also can choose to dine in at the property, he said, or go out and experience the local cuisine and neighborhoods.
He said his company has seen increases in demand for extended-stay options from guests who stay between five and 11 nights. These guests’ professional backgrounds include medical fields, technology, consulting and government work, he said.
Demand for this segment is directly related to the level of economic growth similar to the rest of the overall hotel industry, Daley said, so continued economic growth is the best way to ensure strong demand.
“To the extent that growth is focused in areas that create long-term assignments, like infrastructure projects, the demand for extended-stay product will continue to grow more briskly than for the industry as a whole,” he said.
Extended-stay hotels will continue to see positive RevPAR growth into 2017, Skinner said, but its future performance will depend on the post-election economic rebound or decline. If there’s a large increase in infrastructure spending, as some think will happen, that’s good for extended-stay properties, he said.
“You can expect (RevPAR growth) to persist through 2017, but expect RevPAR gains lower than 2016, which is going to be 3% to 4%,” he said.