Extended-stay segment mirrors US recovery
Extended-stay segment mirrors US recovery
20 JULY 2010 8:18 AM

Rate recovery for extended-stay hotels, however, is not expected until 2011.

STR’s recently revised United States lodging industry forecast for 2010 and 2011 anticipates a quicker recovery than the forecast issued in May 2010. Our second quarter forecast for the extended-stay segment also anticipated an acceleration of its recovery compared to the first quarter of 2010. Generally, extended-stay hotel trends mirror trends in the overall hotel industry. The extended-stay segment’s recovery is predominantly occupancy-based like the predictions STR issued for the overall hotel industry. In light of STR’s recently revised forecast for 2010 and 2011, we offer our amended forecast for the extended-stay segment through the same years.

Note: (1) Projected year end
Sources: STR Global, The Highland Group

Our forecast for 2010 and 2011 is based on a similar correlation between the current recovery of the overall hotel industry and the extended-stay segment and the recovery coming out of the 2001/2002 recession. However, so far in 2010 the gap between extended-stay and overall demand growth has been wider than it was in the last recovery. Some of this is due to a larger disparity in rate discounting than during the last recovery. Another difference is that during the previous recovery, the overall hotel industry posted positive revenue per available room change about six months before the extended-stay segment. This time the extended-stay segment posted positive RevPAR change in the first quarter of 2010 but it will take until the second quarter for the overall hotel industry to do the same.

Note: (1) Projected year end
Sources: STR Global, The Highland Group

To maintain the same correlation with the overall hotel industry as experienced during the last downtown, extended-stay hotels will need to raise rates in the second half of 2010. Although overall hotel rates have started to show positive monthly change and are expected to be down only slightly in 2010 compared to 2009, longer term contracts at extended-stay hotels tend to prolong increasing average rates. Therefore, this time we could see extended-stay rate increases taking a little longer to catch up.

Note: (1) Projected year end
Sources: STR Global, The Highland Group

Our forecast is essentially RevPAR-based. Consequently, if extended-stay hotels raise rates in the second half of 2010, growth in demand and occupancy would be expected to be lower than in the first half of the year. At a time of gyrating stock markets and other erratic monthly economic indicators, we expect to revise our forecast again when actual second quarter extended-stay performance numbers become available in a few weeks. Meanwhile, the table following summarizes our latest forecast.

Extended-Stay Hotel Forecast: Change From Previous Period
  2009(1)  2010(2) 2010(3)  2011(3)
Room Supply  6.7% 5.5% 3.0% 1.5%
Demand 0.4% 16.5% 10.2% 3.7%
Average Rate -10.2% -8.6% -0.7% 2.4%
Occupancy -5.8% 10.4% 7.0% 3.7%
RevPAR -15.4% 0.9% 6.2% 4.7%
Notes: (1) Actual year end
           (2) First quarter 2010 compared to first quarter 2009
           (3) Projected year end
Source: The Highland Group

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

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