Extended-stay outlook bright in US
Extended-stay outlook bright in US
05 MARCH 2015 8:30 AM
Extended-stay hotels are gaining popularity among investors due to their steady and satisfying performance over the years.
REPORT FROM THE U.S.—The United States extended-stay market has been performing well in recent years, and is gaining popularity among developers and investors. We see extended-stay hotels as part of new and exciting mixed uses, dual-brand projects, and now innovative developers are bringing this type of hotel from highway or suburban areas to urban areas. 
The increased use is raising public awareness of this special type of hotel. To understand the extended-stay market we have analyzed the performance of lower and upper-scale extended-stay hotels. 

Lower scale
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According to STR, the parent company of Hotel News Now, the growth rates of extended-stay supply and demand have been healthy since the recession. The steady growth of demand and relatively stable supply has created an opportunity for hotel owners and operators to increase average daily rate while increasing occupancy, thereby maximizing revenue per available room.
Click chart to enlarge.
The past three years have been favorable. Occupancy, ADR and RevPAR showed positive results and improving trends, with each year’s performance higher than the previous. 
The market reached its best performance in 2014 since 2009, with 74.8% in occupancy (+2.3%), $59.29 in ADR (+7.1%) and $44.34 in RevPAR (+9.6%). These indexes were positively correlated with the supply and demand growths rates. 
Upper scale 
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The supply and demand growth rates in the upper-scale extended-stay market outperformed the lower-scale extended-stay segment. Starting from 2009, demand growth outpaced supply growth. By the end of 2014, the demand growth rate was 7.2% while the supply growth rate was 5%, showing a promising trend for 2015. 
Click chart to enlarge.
Upper-scale extended-stay hotels performed well in occupancy, ADR and RevPAR. These trends correspond with the demand change in the recent three years. 2014 ended with occupancy of 78.2% (+2.1%), ADR of $130.87 (+5%) and RevPAR of $102.31 (+7.2%), reaching their highest points to date.
Buyer types
There have been some dramatic changes of buyer type over the past few years. From 2012 to 2013 there was a shift from institutional investment that jumped from 29% to 67%, according to Real Capital Analytics. The following year, it shrank back to 29%. Public listed real estate investment trusts increased drastically between 2013 and 2014, changing from 6% to 39%. Lastly, the portion of private investors has been relatively steady, ranging from 39% to 25% from 2012 to 2014. 
According to Real Capital Analytics, during the past 24 months, the biggest buyers in the extended-stay market are Blackstone Group, NorthStar Realty Finance and American Realty Capital Hospitality Trust. On the other hand, the biggest sellers were Cerberus, Goldman Sachs and Clarion Partners. 
There is no doubt extended-stay hotels are gaining popularity among investors due to their steady and satisfying performance over the years. As mentioned previously, the demand growths were positive in the past six years. The two major causes of the steady growth in demand align with the recovery of U.S. economy:
  • The business traveler segment has increased as well as significant utilization in corporate negotiated accounts, corporate relocation, training programs and long-term consulting assignments.
  • The leisure traveler segment has seen increased demand, entertainment, weekend stay, vacation travelers, and more demand from transient families, and they prefer hotels with kitchen amenities and more spacious rooms. 
On the other hand, the following factors have driven the growth of supply:
  • The pipeline for new extended-stay hotels is robust. STR is reporting record projections beginning in 2015 and beyond. The supply growth of 5% for the past years is expected to increase significantly with new extended-stay hotels in pre-development, and more are expected to open in the coming 12 months.  
  • Major hotel companies—for example, Marriott International, Hilton Worldwide Holdings, Hyatt Hotels Corporation, Starwood Hotels & Resorts Worldwide and InterContinental Hotels Group—are implementing rapid expansion strategies for their extended-stay brands.
Paul Breslin, Principal of Horwath HTL, is a 35 year veteran of the hospitality industry. His background within the industry is all encompassing, as he has extensive experience in hotel operations, development and asset management with major branded hotels as well as independent and smaller luxury hotels. Mr. Breslin, who is qualified as a Certified Hospitality Educator (CHE), is also a respected and well-known teacher and leader within the industry. He is the Executive-in-Residence in Lodging in the J.Mack Robinson College of Business, Cecil B. Day School of Hospitality at Georgia State University.
Hanjie Tang is currently pursuing his bachelor’s degree in Hospitality Management at Cornell University, School of Hotel Administration, with a minor in Real Estate. He joined the Horwath HTL team as an intern in January 2015. Hanjie has extensive work experience in hotel operation and knowledge of hotel development. At Cornell hotel school, Hanjie is serving as a teaching assistant for Hotel Development & Planning and Marketing Principles. For this position, Hanjie helps professors come up with assignments and tutors students. In addition, Hanjie is the co-founder of AH&LA Cornell Student Chapter, a member of Cornell Real Estate Club, and was the chief editor of Cornell Global China Focus.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that might 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. 

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