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 Survey Results of the Extended Stay Lodging Industry
 
This report on the status of the extended-stay lodging industry in the United States was prepared by The Highland Group as a service to the industry. We are grateful to the extended-stay hotel chains and owners that contributed information to this report and trust that the results will be useful. While accurate to the best of our knowledge, we do not warrant the accuracy of any of the information in this article. We do not warrant that any projections will be attained. This information should not be relied upon to make any investment or management decision without further research and analysis.
Highlights
 
Extended-stay hotel room supply in the United States increased more than 50 percent in 1997 over 1996.
There will be more economy-price than upscale extended-stay rooms before the end of 1998. This is a significant reversal from prior years and indicates a change in the way extended-stay lodging is used by American travelers.
Projected extended-stay hotel supply will be more than half a million rooms through 2002. At this level, extended-stay hotel rooms will represent some 12 percent of total lodging inventory.
 
 
 
Database

The database used in forming the estimations and projections in this report 31 extended-stay brands as well as some independent hotels. There are other independent extended-stay hotels that were not included, but the sample represents most extended-stay rooms in the US. Brands are grouped by the weekly room rate range in which their hotels conform. However, individual hotels of a given brand may have weekly rates outside the ranges in certain markets and we have adjusted for these variations.
 

United States Extended-stay Lodging Supply

Extended-stay room supply increased 54 percent during the first 10 months of 1997 compared to year-end 1996. Supply gains in 1997 followed a 32 percent increase in 1996 over 1995. Extended-stay hotel rooms currently represent about 3 percent of total US hotel room supply. The graph following shows the increase in extended-stay hotels rooms by rate tier since 1990.
 
 

Extended-stay hotel supply approached 107,000 rooms through October 1997. The fastest supply percentage increase occurred in the mid-price and budget segments because they are the smallest groups. The greatest number of rooms was added in the economy segment and more economy extended-stay rooms are under construction than rooms in other segments:

Projected room additions through 2002 in the economy segment are also the strongest, and this segment is projected to have the greatest number of rooms before the end of 1998, as follows.
 
 

 Source: The Highland Group

Assuming supply growth projections are fully realized through 2002, this represents a significant change from the current price distribution of extended-stay hotels and marks a change in the way Americans use extended-stay lodging. Use of extended-stay lodging will have expanded from the corporate expense-account market to encompass most demographic segments. Corporations are taking advantage of the availability of these facilities for training, relocation and temporary assignments at all levels.

According to Smith Travel Research, total US hotel room supply increased at an average annual rate of 1.5 percent from 1990 through October 1997. Assuming total room supply increases at the same rate through 2000 and extended-stay hotel growth projections are fully realized, extended-stay hotel rooms will account for about 12 percent of total US hotel room supply through 2002.
 

United States Extended-stay Lodging Demand

Average extended-stay hotel occupancy was 79.6 percent through October 1997, which was the same as year-end 1996 occupancy despite a 54 percent increase in supply. This represents remarkable expansion of demand in response to new product. The table following shows historic extended-stay hotel demand growth.
 
 

Historic Average Occupancy and Demand Growth: 
U.S. Extended-Stay Hotels
1990 1991 1992 1993 1994 1995 1996
1997
(10 months through October)
Rooms 37,330 41,610 42.950 44,907 47,077 52,404 69,349 106,929
Occupancy 73.3% 73.4% 76.2% 79.1% 80.9% 80.5% 79.6% 79.6%
Rooms Sold (thousands) 9,987 11,148 11,946 12,965 13,901 15,401 20,154 31,067
Demand Growth 12% 7% 9% 7% 11% 31% 54%
Sources: Smith Travel Research, The Highland Group
 

Extended-stay room demand grew at an annualized rate of 54 percent in 1997 compared to 1996. This equates to an annualized gain of almost 11 million room nights in 1997 following an increase of nearly 5 million room nights in 1996 compared to 1995. New extended-stay rooms are being absorbed rapidly on a national level.

Occupancy is highest in the budget segment, which is consistent with the inverse relationship between average length of stay and price. (Average length of stay increases as price decreases and a long average stay tends to promote higher occupancy.) Ultimately, we project that occupancy in economy and mid-price segment will be higher than in the upscale category. Lower occupancy in these segments compared to the upscale tier reflects a relatively high number of new rooms currently under absorption in mid-price and economy segments.

The overall average rate for extended-stay hotels declined to $67 in 1997 from $71 in 1996. Average rates rose in the upscale segment, but the overall average rate declined because of the large increase in lower-priced extended-stay hotels.

We project that the strongest average rate increases will occur in the mid-price segment because of the projected increases in the proportion of hotels price in the upper end of this category.

Extended-stay is a dynamic and rapidly evolving segment of the lodging industry. Its presence will be felt at all lodging price points within two years. Hotel owners and operators need to be aware of extended-stay and knowledgeable about these products so they can adapt their strategies to the marketplace of the year 2000.

 
 

Contact:
The Highland Group
1111 Rosedale Drive
Atlanta, GA 30306
404- 872- 4631
email: highlandgroup@mindspring.com
 


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