Extended stay Q2 forecast shows demand, occupancy increases
Extended stay Q2 forecast shows demand, occupancy increases
02 JUNE 2010 8:11 AM

Segment’s supply, demand and occupancy are expected to rise in the second quarter, but average rate and RevPAR forecasts are not so positive.

When we made our first-quarter 2010 forecast for the extended-stay hotel segment, we had actual data for most extended-stay hotel brands for about half the quarter. At that point, it appeared average rate and revenue per available room would decline by the ranges shown in the second column of the table below. 

Extended-Stay Hotel Statistics (1)
  Forecast 1st QTR. Actual 1st QTR. Forecast 2nd QTR.
Room Supply up 4% - 6% up 5.5% up 4% - 6%
Demand up 16% - 20% up 16.5% up 16% - 20%
Average Rate down 11% - 14% down 8.6% down 8% - 10%
Occupancy up 9% - 12% up 10.4%  up 9% - 12%
RevPAR down 3% - 5% up 0.9% down 1% - up 2%
Note: (1) Compared to same quarter in 2009
Source: The Highland Group

With demand forecast to increase by 16 percent to 20 percent (it actually grew 16.5 percent), extended-stay hotels reduced discounting of room rates and the actual first-quarter decline in average rate was 8.6 percent. The lower-than-expected fall in average rates resulted in the first positive change in quarterly RevPAR for six quarters. Moreover, the actual change in RevPAR was quite different from the forecasted range, although actual changes in supply, demand and occupancy were within their predicted ranges.

The overall hotel industry also had a good first quarter with increasing occupancy and smaller declines in average rate as the quarter went on and beyond. STR reported a 1.2-percent decline in average rate in April compared to a 3.4-percent decline for the year to date. Despite a much bigger increase in occupancy than hotels overall, extended-stay hotels are offering relatively large discounts in rate that are inhibiting the segment’s speed of recovery.

Reviewing actual data from most extended-stay brands for about half the second quarter indicates that the rate of supply growth should be slightly less than in the first quarter and growth in demand should be a little quicker than in the first quarter. Accordingly, the gain in occupancy should be larger than the 10.4-percent increase during the first quarter, which was the largest quarterly increase in occupancy for at least a decade. Because of the prevalence of discounted long-term contracts (especially during a recession), extended-stay hotel rates tend to have a slower upside trajectory than overall hotel rates. However, with recovery indicators this strong, we would expect second-quarter declines in extended-stay average rates in the range of 3 percent to 5 percent. Hopefully, extended-stay hotel yield-management systems will be as effective in the latter half of the second quarter as they were in the first. If so, we could see average rate declines below our forecast range of down 8 percent to 10 percent and possibly an increase in RevPAR above our upper-limit forecast of 2 percent.

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

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