Extended-stay hotels had a very good start to 2016 as they maintained higher growth in revenue per available room (RevPAR) than the overall hotel industry, according to the Highland Group’s First Quarter U.S. Extended Stay Lodging report.
Extended-stay demand continues to increase at about 5 percent quarterly, and there appears to be no significant change to that trend on the horizon, according to the report. Occupancy also remains high compared with historic averages and there is more than enough supply growth to accommodate increasing demand, the researchers conclude.
However, the accelerating increase in supply is reducing occupancy, and for the first time in more than five years all three extended-stay segments reported a quarterly decline in occupancy. Overall extended-stay occupancy has now declined slightly for four consecutive quarters and is likely to continue declining throughout 2016.
At the same time, room revenues are up more than 10 percent and gains in average daily rate (ADR) are strong enough to continue positively impacting RevPAR, which is up 3.5 percent year over year in the extended-stay sector. RevPAR grew at 2.7 percent for the hotel industry overall.
There were 397,003 extended-stay hotel rooms open at the end of first quarter 2016, which is an increase of more than 22,000 from the previous year. Room supply is growing at about 6 percent annually with upscale as the fastest growing segment.
The 6.1 percent increase in the number of economy-segment rooms includes the impact of acquisitions and brand changes, which moved rooms from the mid-price segment. Actual new construction in the economy segment is less than 4 percent of current room supply.
Extended-stay hotel demand rose 4.9 percent during the first quarter 2016 compared with one year ago. Demand growth has been steady and in only one of the last nine quarters has demand growth been below 4 percent. Demand growth was considerably higher for extended-stay hotels than in the overall hotel industry, which only rose 1 percent according to STR.
Extended-stay hotel room revenues rose 10.8 percent compared with the first quarter of 2015. This was the second-fastest increase in first-quarter room revenues since 2006. Extended-stay hotel room revenues are growing at approximately $1 billion annually, which is more than twice as fast as the overall hotel industry.
Overall, extended-stay occupancy was down 2.1 percent in the first quarter of 2016 compared with the same period in 2015. At 72.2 percent, first-quarter occupancy is the third highest since 2009. However, this was the fourth consecutive quarter of declining occupancy. The economy segment experienced the largest decline in occupancy, falling from 78.8 percent to 75.3 percent.
According to the report, the drop was largely due to brand acquisition, movement from the mid-price to economy segment and renovations to large numbers of economy segment rooms. Overall, extended-stay occupancy fell from 73.7 percent to 72.2 percent, but remains well over the 60.7 percent occupancy rate of the overall hotel industry.
Extended-stay hotels are defined as hotels offering a fully equipped kitchenette in each guest room, which accepts reservations and does not require a lease.
— Haisten Willis