Extended-Stay Development Is Rapid, Profitable; More To Come

NATIONAL REPORT? The rapid rollout of new rooms will continue for the extended-stay sector as new construction in that arena persists at a faster pace than the rest of the hotel industry. More than 40,000 new rooms opened in 1999, bringing the extended-stay inventory of rooms to 189,138 at the end of last year. More than 25,844 extended-stay hotel rooms are slated for development in 2000, according to Mark Skinner, partner, The Highland Group, signaling that this sector remains attractive to developers despite talks of saturation. Yet while there has been considerable supply growth? extended-stay hotels represent 4.8% of the hotel rooms in the United States, up from 3% in 1997? demand growth has been on the rise as well, as more and more consumers become familiar with the concept. Some of this demand is coming from traditional transient consumers that are trying out extended-stay lodging?s expanded facilities, which is evident in the breakdown of guests at these hotels which report anywhere from 10% to 80% of business as transient leisure and commercial guests. But with supply growth outpacing demand growth, occupancy in this segment has suffered over the last few years, according to HVS? extended-stay Lodging Overview. The survey reported an 8% decrease in occupancy from 1994?s 80% level to the lower 70%-range in 1999. However, the rate of supply growth is expected to slow down over the next few years for extended-stay lodging, even though it will remain higher than the rest of the industry. This means that occupancies will hover in the low 70%-range for the foreseeable future, according to HVS. Mid-price brands such as Bradford Suites, Candlewood Suites, Mainstay Suites and TownePlace Suites may have the hardest time dealing with new supply since that was reported as the fastest growing niche in the extended-stay market in 1999, according to The Highland Group?s 2000 extended-stay Lodging Report. That sector accounts for approximately 23% of total extended-stay room supply. Upscale Dominates Economy-priced extended-stay hotels, such as extended-stay America, Homestead Village and Studio Six, increased their share of total supply to about 23% in 1999 as well, however the upscale segment remains the dominant segment with 32% of total rooms in 1999, according to The Highland Group. The strong fundamentals behind the development costs of extended-stay hotels are driving their popularity among developers. Not to mention that in most cases, sale prices for extended-stay properties in 1999 were at a premium to development costs, according to HVS. ?RevPAR trends in all three tiers have outpaced CPI increases over the past five years,? said Steve Hennis, author of HVS? extended-stay Lodging Overview. ?Strong RevPAR growth, coupled with smaller staffing requirements, has allowed extended-stay properties to become more profitable than typical limited service products,? Hennis said. Bruce White, CEO of White Lodging agrees, noting that the 17 Residence Inn hotels that are currently open and operating in the company?s portfolio have outperformed many other assets. ?Our Residence Inn properties have performed exceptionally well, with premiums in occupancy and rate,? said White. ?As a portfolio, they run 130% market share,? he said. ?We operate many hotels in many different segments and feel our Residence Inns are performing at or near the top,? White said. White attributes the strong performance to the fact that guests like the product, with large rooms and added amenities such as kitchen facilities. In addition, with Residence Inn being part of the Marriott family of brands, he said that people trust the product and loyal Marriott guests spill over to the Residence brand. White Lodging continues to pursue the extended-stay market aggressively, with five additional Residence Inn hotels currently under development in Austin, TX; Louisville, KY; Schaumburg, IL; Denver; and Indianapolis. Larkspur Hospitality Co., based in Corte Made