Rate key to record extended-stay RevPAR
 
Rate key to record extended-stay RevPAR
17 MARCH 2011 7:40 AM

The outlook has rarely been this good for extended-stay hotels, though more accelerated ADR growth is needed to set a new RevPAR growth record.

In a related article dated November 2010, we considered the possibility that revenue-per-available-room growth for the extended-stay hotel segment in 2011 could exceed the 11.2% annual record set in 2005.

While that is still a realistic possibility and stronger RevPAR growth than the 7.1% gain in 2009 is very likely, early indications suggest average daily rate increases will not be sufficient to drive RevPAR growth to a new record during 2011.

 
Sources: STR Global, The Highland Group
Click image to enlarge.


STR’s most recent forecast predicts that United States hotel industry average daily rate will increase 4.2% during 2011 compared to 2010. The upswing in extended-stay hotel average rates initially lagged that of the overall hotel industry until the fourth quarter of 2010 when extended-stay ADR grew 3.1% compared to the 1.9% STR reported for the overall hotel industry.

 
Note: (1) Projected
Sources: STR Global, The Highland Group
Click image to enlarge.


Extended-stay hotel ADR increased faster than those of the overall hotel industry for most of the five-year expansionary period starting in mid 2003. With record low supply growth for at least the next one to two years, we expect that will occur again during the current expansion. However, early indications from the first quarter suggest it could be after 2011 before extended-stay hotel ADR growth is significantly faster than the overall hotel industry, as it was from 2005 to 2007.

Without accelerating rate increases in March compared to January and February, extended-stay hotel average rates are forecast to grow 3% in the first quarter of 2011 compared to the same period in 2010. Actual STR data from January and preliminary numbers from February suggest the overall hotel industry will experience a similar gain in average rate in the first quarter.

Extended-stay demand is forecast to increase 7.2% in 2011. If demand increases by that much, average rates would need to rise 5% to 6% for annual RevPAR growth to set a new record. Currently, we estimate extended-stay hotel ADR will increase by 4.3% in 2011. If so, and growth in supply is 1.3% as expected, extended-stay hotel RevPAR is forecast to increase by 10.3%. While not a record, this would be the second strongest annual increase in at least 12 years, and all of the RevPAR declines experienced during 2008 and 2009 would be regained.

 
Note: (1) Projected
Sources: STR Global, The Highland Group
Click image to enlarge.


Emerging from the last downtown, extended-stay hotels took approximately 19 quarters to return nominal RevPAR to the peak set in 2000.  RevPAR fell further during the most recent recession, but it is recovering more quickly. Extended-stay nominal RevPAR in 2010 was 89.4% of its annual peak set in 2007.  Supply growth in 2011 and in 2012, which is at a fraction of what it was during the previous rebound, provides a foundation for significant increases in both occupancy and ADR.

The outlook has rarely been this good for extended-stay hotels. The following table summarizes recent history and our forecast for 2011.

       
Source: The Highland Group
Click image to enlarge.  
     

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