By all accounts, 2005 was the best year ever for the extended-stay segment of the hotel business. According to The Highland Group, extended-stay RevPAR increased by 11.1 percent, the biggest one-year increase ever. RevPAR in the upscale category (Residence Inn, Staybridge Suites, Homewood Suites, etc.) grew by 11.7 percent to lead the segment.

Unlike the rest of the hotel business, extended-stay supply is increasing at a brisk clip. In '05, inventory rose by 5.7 percent, or nearly 14,000 rooms. That's up considerably from the previous year, when 5,200 rooms were added. Yet demand growth (8.2 percent) easily outpaced supply additions, resulting in a 2.7-point boost in segment occupancy to 76.2 percent.

Extended stay properties met with little price resistance last year, as rates rose 7.2 percent. All segments of the market reported gains in average rate and RevPAR. Economy segment (Suburban, Studio 6, Value Place) RevPAR was higher than its previous peak in 2000, while the upscale and mid-priced segments were close to their historic peaks.

Extended stay hotels are profit machines. Last year, gross operating profits for all three price points were above 50 percent, with the mid-priced tier leading the way with an average GOP of 59 percent.

While the economy sector posted a slight decline (0.7 percent) in supply last year, The Highland Group analysts believe it will rebound significantly this year as Suburban Extended Stay Hotels (purchased last year by Choice Hotels) and Value Place ramp up their franchising efforts.

More than 13,000 extended stay rooms were under construction at the end of 2005, up 56 percent over the previous year and the highest total since 2000. Openings this year should mirror '05 numbers and again easily outpace the rest of the hotel industry.

The Highland Group recently published its annual study of the extended stay lodging market. It's available for $395. Call Mark Skinner at 404-872-4631 for information.

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