REPORT FROM THE U.S.—Over the long term, trends in overall hotel industry and extended-stay hotel revenue per available room are very similar, but an analysis of these metrics suggests extended-stay has an advantage.
- This is part four of a series on the extended-stay hotel segment. Part one took a broad look at the state of extended-stay demand. Part two examined how extended-stay hotels fared after recent hurricanes. Part three focused on how the segment is defying the usual economic cycle, despite showing stress.
During the 2001/2002 recession, the annual change in RevPAR for both turned negative although the decline in extended-stay hotel RevPAR lagged the overall industry by about six months. During the deep recession of 2008/2009, the decline in extended-stay hotel RevPAR led the overall industry, but the fall was not quite as deep. However, recent performance metrics show extended-stay hotels strongly beating the overall hotel industry.
Given that the 455,000 extended-stay hotel rooms account for only about 8.5% of total U.S. room supply, the rate of increase in extended-stay supply is always going to be relatively high. Both are currently accelerating on an annual basis, but extended-stay hotel supply is growing at three to four times overall room supply.
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| Sources: STR; The Highland Group |
Higher supply growth usually results in relatively low gains in occupancy and eventual occupancy decline, as occurred from the first quarter of 2014 to mid-2016.
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| Sources: STR; The Highland Group |
By mid-2017, extended-stay occupancy began a clear rising trend, which the overall hotel industry followed as the year end approached. Despite comparative supply growth, the extended-stay occupancy gain beat the overall hotel industry in Q1 2018. Extended-stay average occupancy was 74% from 1998 through 2017, but occupancy has been above average in all of the last seven years and the average over the last four years is 76.2%.
With occupancy staying near record highs, extended-stay average daily rate growth was well above the overall hotel industry for most of 2014 and 2015. The cyclical deceleration of extended-stay hotel ADR was relatively quick through Q3 2016 before accelerating again in 2017. Overall hotel ADR growth started accelerating in Q4 2017, but is still well under the growth experienced by the extended-stay segment.
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| Sources: STR, The Highland Group |
The following chart shows similar RevPAR trend lines throughout 2014 to Q4 2016 with extended-stay hotel RevPAR increasing slightly faster over the three-year period.
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| Sources: STR; The Highland Group |
RevPAR trend lines clearly diverged for most of 2017 before extended-stay and the overall hotel industry saw a sharp uptick in RevPAR in Q4 2017. Some of the uptick was due to the boost from hurricanes, but the increase in Q1 2018 RevPAR suggests the upturn is more fundamentally driven.
The deceleration of overall hotel room revenue growth began at the end of 2014 and was steeper than the change for extended-stay hotels. From mid-2016, quarterly room revenue growth for the overall hotel industry stayed mostly above 5% while extended-stay hotels accelerated over six consecutive quarters, reaching a high of 15.7% in Q4 2017. The last time extended-stay room revenue growth exceeded 15% was in Q1 2006.
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| Sources: STR; The Highland Group |
Trend lines for extended-stay and overall hotel demand were upwards from mid-2016 although acceleration of extended-stay hotel demand was quicker and more consistent.
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| Sources: STR; The Highland Group |
Although Q1 demand growth was lower than the second half of 2017, extended-stay demand increases remain well above the long-term annual average. Overall hotel demand also increasing above its long-term average indicates strong economic fundamentals are still driving demand well into the current expansionary period. Overall hotel industry and extended-stay segment performance trends are likely to strongly correlate over the entire economic cycle but in the shorter term, the outlook is very good for continued superior extended-stay performance metrics.
Mark Skinner, ISHC, is a partner with The Highland Group. Tel (404) 872 4631 www.highland-group.net
The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.