HENDERSONVILLE, Tennessee—Because its pricing model and amenity package offer higher value for longer-length-of-stay customers, extended-stay hotels were better positioned to weather the downturn, theoretically. But that doesn’t appear to be the case at first glance.
The extended-stay segment declined more in occupancy than the rest of the U.S. hotel industry during the first quarter of 2009, resulting in a 22-percent revenue-per-available-room decline versus the total industry’s 18-percent decline.
However, when looking at the demand, supply and room revenue data, a clearer, much better picture of the extended-stay segment appears.
Occupancy |
% Change |
ADR (USD) |
% Change |
ReVPAR (USD) |
% Change |
|
| US Industry |
||||||
| Q1 2007 | 59.4 | -1.2 | $103.30 | 6.5 | $61.32 | 5.2 |
| Q1 2008 | 57.7 | -2.9 | $108.46 | 5.0 | $62.54 | 2.0 |
| Q1 2009 | 51.4 | -10.9 | $100.13 | -7.7 | $51.44 | -17.7 |
| Total US Extended Stay Chains | ||||||
| Q1 2007 | 69.9 | -3.0 | $81.70 | 6.8 | $57.09 | 3.6 |
| Q1 2008 | 66.8 | -4.4 | $85.28 | 4.4 | $56.98 | -0.2 |
| Q1 2009 | 60.0 | -10.2 | $80.20 | -6.5 | $48.12 | -22.2 |
| Upper Tier Extended Stay Chains* | ||||||
| Q1 2007 | 71.6 | -3.3 | $117.64 | 7.6 | $84.27 | 4.0 |
| Q1 2008 | 69.7 | -2.7 | $121.29 | 3.1 | $84.52 | 0.3 |
| Q1 2009 | 62.6 | -10.1 | $114.75 | -5.4 | $71.88 | -14.9 |
| Lower Tier Extended Stay Chains** | ||||||
| Q1 2007 | 68.6 | -2.8 | $54.51 | 4.4 | $37.39 | 1.5 |
| Q1 2008 | 64.7 | -5.7 | $56.85 | 4.3 | $36.79 | -1.6 |
| Q1 2009 | 58.1 | -10.3 | $52.56 | --7.5 | $30.51 | -17.1 |
* Upper tier extended stay brands: AKA, Chase Suites, element, Hawthorn Suites/Ltd, Homewood Suites, Hyatt Summerfield Suites, Residence Inn, Staybridge Suites and Woodfin Hotel.
** Lower tier extended stay brands: Candlewood Suites, Crestwood Suites, Crossland Suites, Extended Stay America, Extended Stay Deluxe, Homegate, Homestead, InnSuites Hotel, InTown Suites, Mainstay Suites, Savannah Suites, Studio 6, Studio Plus, Suburban Extended Stay, Sun Suites, TownePlace Suites and Value Place.
Source: Smith Travel Research, May 2009
Demand
The total U.S. industry declined in demand by 8 percent during the first quarter, but during that period extended-stay demand only declined by 1.7 percent. Within the segment, the lower-tier brands declined by 2.3 percent, while the upper tier brands’ demand declined by only 1 percent.
The extended-stay segment consistently has had stronger demand growth rates than the overall U.S. performance. When reviewing first-quarter demand trends since 2004, the U.S. industry reported negative growth rates starting in the first quarter of 2007, but the extended-stay segment didn’t see negative growth until 2009. Additionally, the extended-stay negative growth rates were moderate compared to the U.S. industry and other chain scales.
Supply
The extended-stay segment experienced a development boost spurred by the hotels’ popularity and past availability of financing. The effect of new supply has exacerbated the segment’s modest negative demand growth rates.
During first quarter 2009, the U.S. industry reported 3.2 percent more rooms than the same period last year. There were 9.4 percent more extended stay rooms (upper-tier extended-stay rooms increased by 10.1 percent, and lower-tier extended-stay rooms increased by 8.9 percent). This aggressive growth in new extended-stay supply is still in the process of being absorbed into the market, and economic conditions have made it difficult to induce demand to offset the supply growth.
Room Revenue
So what does that mean for revenue that goes to the bottom line? Because of declining demand, overall U.S. industry revenue was down 15.1 percent during the first quarter. Despite strong new supply growth, extended-stay segment revenue only declined 7.6 percent (9.7-percent decline in lower-tier, and 6.4-percent decline in upper-tier extended-stay chains).
Summary
The extended-stay segment has maintained relatively strong demand and room revenue growth considering the economic climate. However, performance metrics such as occupancy haven’t reflected the segment’s ability to hold demand effectively because of aggressive supply growth in first quarter 2009. Although there have been negative growth rates in room revenue, the segment’s decline has been materially less impactful than the overall U.S. industry declines. The extended-stay chains appear to have been more effective in managing their pricing and value offerings compared to the overall hotel industry during the challenging first quarter of 2009.