Spotlight on Extended Stay
Extended stay is a segment of the hotel market that doesn't get all the credit it deserves. Everyone knows extended stay hotels are successful, but few people know how well these properties perform on a consistent basis.
The segment's image is quickly improving, however, thanks in part to the work of the Extended Stay Council of the American Hotel & Lodging Association. This group of extended stay executives has worked hard in recent years to draw attention to the segment and its potential for developers and operators.
The Council recently held its 2005 Extended Stay Hotel Conference in Atlanta at the close of the Hotel Investment Conference. Proceeds from the second annual event, which drew 140 attendees, will be used to fund scholarships for students interested in the segment.
Lodging Hospitality recently spoke with Kevin Lewis, president and CEO of Suburban Extended Stay Hotels and chairman of the AH&LA's Extended Stay Council:
Q How's business for the extended stay segment and for Suburban Extended Stay Hotels?
A Great, for both Suburban and for the business. Occupancy is up slightly this year, and we have more pricing power than we did in 2004.
One sign of the success is that many developers are now looking at the extended stay market as part of a diversification strategy. And in our company, we have one franchisee who has chosen to diversify across all of the sub-segments of extended stay.
Q How has your mix of business changed in recent years?
A We've seen a return of our corporate long-term business — construction workers, people on temporary assignment, consultants, etc. During the industry downturn we had more transient business, but our occupancies never dipped below 70 percent during that time. Our 17 properties in Florida benefited from the clean up and reconstruction work following last summer's hurricanes. Luckily, we didn't lose any properties to the storms.
Q What are the markets of opportunity for your brand?
A For us and many others in the business it's the areas around military bases due to the increased activity in training and mobilization of troops. Also for us, we see opportunities in the Middle Atlantic and Northeast and on the West Coast. Of course, it's hard to develop in the Northeast and parts of the West, but for those developers who can get it done, the increased pricing power makes the effort worthwhile.
Q What are Suburban's growth plans in 2005?
A We expect to add seven or so properties this year, five of which will be new builds. We've introduced a new prototype that will be used for much of our expansion. The prototype is interior corridor with 100 or more rooms. Our average new property is about 130 rooms, which makes for better economics. It's harder to make the product work with less than 80 rooms.
Q How do you address amenity creep?
A You've always got to remember who you are and try not to stray from your concept. When it comes to amenities in extended stay, most of our guests bring with them what they need during their stay. We try to stay true to our economic model.
We have made some improvement recently, specifically larger TVs, improved flooring in the kitchens and an upgraded bedding system. Bedding is especially important at an extended stay property because our guests are likely to be staying two weeks or more with us. And while it's not mandatory, many of our properties have installed high-speed Internet access.
Q How has the Internet affected the marketing of your business?
A Our reservations volume was up 30 percent in 2004, and most of that increase came through the Internet. Still, extended stay is and always will be a backyard business. While at a corporate level we can target large accounts, individual properties need to sell themselves within a three- to five-mile radius.
Q What are the opportunities and challenges for a franchisee-owned company like Suburban?
A In our structure, everyone has input and we're not afraid to change directions as needed. We have a seven-person board that includes six franchisees and me. We meet quarterly to discuss all aspects of the business, and then all franchisees attend our annual meeting.
Q What are the biggest challenges facing the brand and how are you meeting them?
A One, of course, is growth, but only growth that makes sense for us. We want to reach a critical mass of more than 150 properties.
Another priority is to keep abreast of the changing needs and desires of guests. One example is the guest-room TV. At one time, a 17-inch model was sufficient; today, guests expect a 25-inch set. Our guests aren't changing much, but what it takes to keep them satisfied continues to evolve. We do consumer market research every year to make sure we're on top of the changes.
Q What is the role of the Extended Stay Council of the AH&LA?
A Our mission is to develop a unified voice to address the issues of concern to our segment. The Council includes 25 or so companies in the segment, both the major extended stay brands and some of the management companies.
One of our most important roles is education in a variety of areas. We need to educate municipalities on zoning issues, the financing community on the opportunities in the segment and the rating agencies on what the product is and how it should be evaluated. Educating the public and the educational community is another priority. We've endowed a scholarship and provide a variety of internship opportunities for students interested in careers in the extended stay segment.
Q Have the development community and the lenders finally accepted extended stay as a viable product?
A The industry understands the business, but we still need to educate some people. The extended stay segment performed very well during the recent downtown, and that opened a lot of eyes to the business. Also, there is enough product in the market that owners of traditional transient hotels can see how well the product performs. All they need to do is count the cars in our parking lots.
THE BIG IDEAS
According to ongoing research from The Highland Group, the extended stay hotel segment is on a roll. In the first quarter of 2005, the sector outpaced the overall lodging industry in every performance measure, even though supply increased more than six times as fast as the overall hotel business.
Highlights of the first quarter for the segment, as reported by The Highland Group:
Demand increased 6.9 percent over the first quarter of '04 and at about twice the pace of the overall U.S. hotel market.
Extended stay occupancy was 72.1 percent in the first quarter, up from 69.3 percent in the first quarter of '04.
Average rate rose 5.9 percent compared to the year-previous quarter and versus 4.2 percent for the overall market.
RevPAR shot up by 10.2 percent versus 7.2 percent for the industry.
Extended stay supply grew by 9,298 rooms from first quarter of 2004 to this year. Mid-priced extended stay rooms increased by 6.3 percent. At the end of the quarter, the extended stay market included 249,418 guest units.
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