Extended-stay RevPAR to beat industry average
 
Extended-stay RevPAR to beat industry average
25 SEPTEMBER 2012 8:35 AM

During 2012, extended-stay nominal RevPAR should return to the peaks achieved in 2007 and beat the hotel industry average.

Editor's note: Below is a recap of The Highland Group's previous forecast for the extended-stay segment. For the most recent forecast, read "Extended-stay hotel RevPAR to exceed 2007 peak."

ATLANTA—Extended-stay hotels and the overall hotel industry follow very similar cycles. Consequently, if STR’s forecast of significantly lower revenue-per-available-room growth in 2012 compared to 2011 is realized, extended-stay hotels are likely to follow a similar trend.

Mark Skinner

STR, which is the parent company of HotelNewsNow.com, indicated that in 2012 there would be little or no increase in leisure travel because its fundamental drivers, including house values, disposable income and lower unemployment, are projected to show little, if any, improvement next year. Corporate transient and group demand are forecast to increase in 2012, but with leisure travelers accounting for approximately 50% of hotel roomnights, STR forecasts overall hotel demand will increase by only 1.1% in 2012 compared to 4.7% in 2011.

In light of this sharp downward revision in forecasted hotel RevPAR in 2012, we at The Highland Group have revised our projections for the extended-stay segment.

The segment generally has a large share of business travelers and of revenues from the top 25 markets, which should cushion the anticipated decline in the rate of RevPAR increase. Likewise, leisure travelers are estimated to account for only 28% of roomnights in extended-stay hotels.

Therefore, if STR’s segmented demand forecast is realized, extended-stay hotels should see faster annual demand growth than the hotel industry in 2012, as they have done almost every year for the past decade.

Click to enlarge.

STR’s most recent forecast predicts that overall hotel average daily rate will increase 3.7% in 2012 compared to 2011. This was a downward revision from its 4.9% forecast delivered in August 2011.

As tends to happen during expansionary periods, extended-stay hotel ADR started rising faster than overall hotel ADR during the second quarter of 2011. This trend is projected to continue during 2012.

Click to enlarge.

Extended-stay hotels are a price buy, and slower overall hotel ADR growth will have an impact on the segment. Here the distribution of extended-stay hotels should offer some protection because they derive a relatively large share of their revenues from the top 25 markets. For the first three quarters of 2011, STR reported that ADR growth in the top 25 markets was 4.6% compared to 3.6% overall.

The top 25 markets are forecast to continue to lead on ADR growth, and the increase in extended-stay ADR should accelerate as a result.

Because of stronger rates of supply growth suppressing occupancy gains, extended-stay RevPAR increases lagged the overall hotel industry for close to two years during the previous recovery in hotel markets. But as demand and occupancy returned, the current recovery saw extended-stay hotel RevPAR growth in the lead.

However, the segment accommodated a lot of discounted contracts during the recession. Displacing these guests impeded ADR gains and consequently RevPAR growth during 2011.

Click to enlarge.

Emerging from the most recent downtown, extended-stay hotels took approximately 19 quarters to return nominal RevPAR to the peak set in 2000. Extended-stay nominal RevPAR should return to the peaks achieved in 2007 this year. That would be around the same time it took during the previous recovery.

The table following summarizes recent history and our forecast for 2011 and 2012.

Mark Skinner is a principal with Atlanta-based Highland Group. He can be reached at mskinner@highland-group.net.

The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.