HENDERSONVILLE, Tennessee--STR categorizes extended-stay hotels as tiered into two categories: upper- and lower-tiered brands. The upper tier includes brands such as Residence Inn, Staybridge Suites, Homewood Suites and Hawthorn Suites. Lower-tier brands include Extended Stay America, Mainstay Suites, Candlewood Suites and Value Place. When comparing the performances of the two tiers of branded extended-stay hotels, the upper-tier hotels consistently average a higher occupancy level. However, on a 12-month moving average, the lower-tier extended-stay hotels have bounced back at a faster rate (7.8% growth) than the upper-tier extended-stay hotels (2.6% growth) through July 2010.
On the average daily rate front, the upper-tier extended-stay brands had a US$50 to US$66 rate premium over the lower-tier extended-stay brands. Since 2001, percent changes in rates for both tiers generally have been along the same lines. However, during the 12-month period through July 2010 the lower-tiered extended-stay hotels discounted their rates by 11.4% while upper-tiered extended-stay hotels have discounted only by 6.2%. This percent-change relationship is reversed from the 12-month performance through July 2002 (during the last economic downturn). During that period, lower-tiered hotels discounted their rates by 3.6% versus the upper-tier hotel discounting of 6.9%.
On a revenue-per-available-room basis, the deeper discounting strategy to attract more occupancy for the lower-tier extended-stay hotels only resulted in a 4.5% decline on a 12-month average through July 2010. However, the upper-tier extended-stay hotels discounted at almost half that rate and gained less than half the percent growth in occupancy as the lower-tiered hotels but only declined 3.8% in RevPAR.
When looking at supply and demand growth trends, there were huge additions to both upper- and lower-tier extended-stay brands in 2000 and 2001, but that was in line with the double-digit growth in demand for those hotels. During the 12-month period ending July 2009, there was 8.6% growth in lower-tier extended-stay hotels and 10% growth in upper-tier extended stay hotels. This exceeded the demand decline in the lower tier of 0.5% and modest increase of 1.9% in the upper-tier extended-stay hotels during the same period. However, as of the 12-month period ending July 2010, supply growth has remained healthy (6.5% in the lower tier and 8.5% in the upper tier), but has not come close to the demand growth for those hotels (14.8% in the lower tier and 11.4% in the upper tier).
When evaluating total room revenue in the two tiers since 2000, the most robust growth was reported in 2000 and 2001 (12 months ending July). There also was a double-digit upsurge in room-revenue growth in 2005 and 2006. As expected, in the 12-month period ending July 2009, revenues were down for both tiers (6.5% decline in lower-tier extended-stay hotels and 3.2% decline in upper-tier extended-stay hotels). However both are now reporting revenue gains, with the upper-tier hotels leading the pack (1.7% increase in lower-tier hotels and 4.4% gain in upper-tier hotels during the 12-month period ending July 2010).