Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels As a niche segment, extended-stay hotels have come a long way to become a specialized product in the hotel industry. Because the demand for extended-stay hotels has increased, operators and developers are innovating and expanding their product offerings and locations in order to meet the needs of their flourishing customer base. If you have any questions about the report, please contact trends@skiſt.com. WWW.SKIFT.COM WWW.HOMEWOODSUITES.COM
Transcript
Homewood Suites by Hilton + Skift Present:
The Changing Business of Extended-Stay Hotels
As a niche segment, extended-stay hotels have come a long
way to become a specialized product in the hotel industry.
Because the demand for extended-stay hotels has increased,
operators and developers are innovating and expanding their
product offerings and locations in order to meet the needs of
their flourishing customer base.
If you have any questions about the report, please contact [email protected].
Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
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At Homewood Suites, we believe life on the road should be more about life and less about the road. Our studio, one-bedroom and two-bedroom suites provide the space guests need to stretch out, work and relax.
Homewood Suites provides amenities to help guests stay in their routines while away from home. Each spacious suite has a fully equipped kitchen and full-size fridge and other appliances, as well as real dishes & cookware so guests can whip up their favorite healthy meal right in the comfort of their room. We even offer free grocery shopping service – just fill out the in-room shopping list and groceries will be stocked in the fridge and pantry that day.
A free breakfast featuring daily assortments of hot items, waffles, yogurts and cereals is something guests look forward to each morning. Also, on Monday through Thursday nights, join us for free dinner and drinks* in the lodge. Have a beer or glass of wine, our treat.
Keep up with emails and business needs with free Wi-Fi throughout the hotel, and a business center with a fax, photocopier and printer. A 24-hour fitness center, pool and sports court** also help guests maintain fitness routines while traveling.
Whether guests stay with us a few nights or a few months, we guarantee they will stay comfortable and feel at home.
*Monday through Thursday only. Service of alcohol subject to local and state laws. Must be of legal drinking age.
It’s the hotel segment that boasts the greatest profit margins, leading-edge revenue per available room and long-term guest relationships. The extended-stay segment might be considered a unique animal, but its performance begs to be considered the king of the jungle.
This report examines how the leading extended-stay brands and operators are responding to consumer trends and market demands to drive profitability and guest satisfaction, with an emphasis on increas-ing awareness of the extended-stay concept among consumers.
At the same time, extended-stay hotels have an eye to the future. The definitive guest of an extended-stay hotel, the five-plus night guest, has needs that are changing, much like the overall hotel industry. But what sets these guests apart is their desire—their absolute require-ment—for the comforts of home on long-term hotel stays.
The single-most defining characteristic of the extended-stay product is the in-room full kitchen, but brands have worked hard to differenti-ate themselves with a uniquely developed customer service model for their guests that includes evening receptions, limited housekeeping and complimentary breakfast.
Executive summary
Homewood Suites by Hilton Dallas Frisco
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Bill Duncan, Global Head, brand management for Homewood Suites by Hilton and Home2 Suites by Hilton, says the guest who has a longer stay has different needs and those needs drive behavior:
• A focus on the stay experience and the living space.• A desire to maintain their normal routine. • A need to feel nurtured and taken care of while away from home and loved ones.
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Table of contents
About Us 3
Executive Summary 4
Introduction 7
Extended-Stay Consumer Awareness 9
Survey: Travelers choose midscale as the safe bet
Market Intelligence 13
Who are extended-stay customers?
Where do they come from?
Corporate travel insights: Q&A
The new generation of extended-stay travelers
Future Demands Affecting the Segment 17
Urban development: The new frontier for extended stay
Skiftisthelargestindustryintelligenceandmarketingplatform in travel, providingnews, information, data and services to all sectors of the world’s largest industry.
BasedinNewYorkCity,Skifthasdeepexperienceinidentifying and synthesizingexisting and emerging trends, in its daily coverage of the global travel industry, throughitsSkiftTrendsReports and its data insight fromSkiftIQcompetitiveintelligenceservice.Skiftisthe business of travel.
Visit skift.com for more.
Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
Often considered a niche hotel segment that is unknown to the average consumer, the extended-stay hotel segment has experi-enced a positive growth history and, according to industry experts, the segment is expected to have a positive future.
This report presents the story of how the hotel industry developed a demand for this specialized product, what operators and devel-opers are doing today to meet the needs of customers and how the extended-stay segment is likely to evolve in the future.
The birth of the extended-stay segment can be traced back to apartment developer Jack DeBoer, who in 1975 established Residence Inn, the first upscale all-suite hotel. In 1989, Homewood Suites, its only true competitor in the upscale tier, was established. Both brands were later acquired by large hotel companies: Homewood Suites was scooped up by Hilton and Residence Inn was bought by Marriott.
DeBoer went on to establish other brands in the segment: Summerfield Suites (which comprises the majority of the newer Hyatt House brand), Candlewood Suites (now operated by IHG) and Value Place.
The largest owner/operator extended-stay brand with 682 properties, Extended Stay America, was founded in 1995.
Introduction
Homewood Suites by Hilton Atlanta Midtown lobby
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The newest brands to enter the segment are Home2 Suites by Hilton and Hyatt House. Home2 Suites launched as a new-build brand in 2009 and its first property opened in 2011. Hyatt House established its base of properties with conversions of Summerfield Suites in 2011.
The segment is on the minds of many hotel brand leaders, even those who don’t operate within this category.
David Kong, CEO of Best Western International, said, in an open-ended discussion with Hotel Management, that extended-stay was a travel industry trend that had an impact on hotel deals and operations: “The extended-stay segment has broad appeal to travelers and developers. It is marginally more expensive to build, but there are cost efficiencies in operations. Just about all major hotel companies have launched extended-stay brand(s).”
The demand for the long-term stay is beyond what the niche segment can accommodate, says Tom Seddon, CMO, Extended Stay America. “The demand for stays of five-plus nights is 22 percent of all room nights sold, yet only 7 percent of the supply is extended-stay, which is a big imbalance.”
In terms of performance metrics, the midyear 2014 average oc-cupancy in the category was at its highest level in 12 years, at 76.9 percent, according to The 2014 US Extended-Stay Lodging Midyear Report from The Highland Group. Supply growth was 2.5 percent and demand growth was 5.0 percent in June year to date. Revenues were up 10.6 percent for the segment for June YTD and second quarter revenue increases were the fastest second-quarter increase since 2006 at 11.3 percent growth, according to Highland.
“It’s a segment that has a product that is incredibly versatile,” says Christian Kuhn, VP of marketing for Homewood Suites by Hilton and Home2 Suites by Hilton. “Both for transient and longer term, because it’s anchored by the full-size kitchen it gives the traveler the best of all worlds even though it’s considered a niche. It makes it easy to talk about—it works for everybody.”
Indeed, from private equity investors to regional developers, the extended-stay segment enjoys a favorable reputation—but are consumers coming along for the ride?
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Built into the longer-stay guest relationship is
the ability to get valuable customer feedback
duringthestaysoffiveormorenights(the
average stay is 14 days). While limited in
number,thestaffistrainedtobewelcoming,
accommodating and to seek out ways to make
guests feel at home.
Tom Bardenett, president of the Crossroads
HospitalityDivision(select-servicedivision)
ofInterstateHotels&ResortsandEVPof
operations, says it’s a very unique scenario
for interaction.
“It’s one of the easier segments to actually
operate—you don’t have to guess at their
needs, because of the length of stay you
can establish a relationship with long-term
guests so they continue to want to stay,”
says Bardenett, whose company manages
several extended-stay brands, including 10
Homewood Suites properties.
“They are a very open book, because they
are there so long, that interaction allows the
operator to really get to know their guests.”
It’s a good position for a segment to be able
to get that valuable guest feedback, but
industry players understand that there is
still work to do in terms of getting the word
out—improving consumer awareness and
acceptance of the extended-stay product as
applicable to their travels.
“We, as an industry, just haven’t done a good
job telling that story,” Seddon says. “We
need to introduce people to the category. If
you had a choice of full kitchen why wouldn’t
you take it?”
Owners share similar sentiment regarding the
need for explanation to new customers.
NavinDimond,PresidentandCEOof
Stonebridge Companies, an owner and
developer of major hotel brands, including
several extended-stay brands, says his sense is
that the extended-stay concept is
misunderstood or not understood.
“If someone knows the product they under-
stand it, but if they are a new customer, even
if it has ‘suites’ in the name, it doesn’t tell you
it’s extended-stay, it doesn’t tell you about the
kitchen,” he says. “It’s not as well understood
as we’d like it to be.”
Extended-stay consumer awareness
“The longer they stay the more they’ll tell you what they need.” -Tom Bardenett
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Dimond says it requires explaining the
amenities and showing customers
photographs,videosandfloorplans.
“Once they see it they say they like it, but
we need to make sure customers know
whatweoffer,”hesays.“Ourjobasa
segment and a brand is to make sure we’re
doing that.”
Because hotel selection is highly
influencedbypricing,increasedawareness
of extended-stay amenities could do much
to persuade value-conscious travelers.
While there can be a $10 premium in a per-
night comparison of room rates, travelers
might not realize that extended-stay hotels
offercomplimentaryhotbreakfasts,
evening receptions with a selection of
snacks and of course, the full in-room
kitchensthatofferevenmorefoodand
“It’s not as well understood as we’d like it to be.” - Navin Dimond
beverage cost savings.
A review of keyword search habits on
TripAdvisor indicates that visitors to the
websitearefindingextended-stayhotels
most often by searching by hotel name,
despite the fact that “kitchenette” is
offeredasanamenityonthemajorcity
hotel search pages. In fact, less than one
percent of site visitors are searching for
“kitchenette,” according to TripAdvisor
data.
This suggests that most often, site visi-
tors already know an extended-stay brand
when they express interest in this type
of accommodation, which does support
marketing intelligence that once someone
stays at an extended-stay property, they
have a high satisfaction rating. However,
had more visitors chosen the “kitchenette”
amenityasameansoffindingtheproduct,
it would suggest that visitors understand
theextended-stayofferingimpliedbya
guestroom with a kitchenette.
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Survey: Travelers pick midscale as the safe bet
In order to examine the extended-stay segment’s position among hotel options for travelers, we
conducted a series of surveys about their preferences in hotel type for trips of five-plus nights.
We used Google Consumer Surveys to conduct research on leisure trip and business trip prefer-
ences of U.S. adult Internet users.
The results indicate that respondents favored midscale hotels with restaurant, by a slight margin,
for both leisure and business trips of five-plus nights. But then all other hotel types were almost
equal in preference in the responses. In some ways, this is a win for extended-stay hotels, in that
the segment is keeping up with the industry and there is no aversion to this hotel type.
However, because the survey specifically asked travelers to consider their long-term stays, the
results should have favored the hotel type that offered amenities that are known to be important
to guests when a hotel stay surpasses the five-day mark. In addition, we referred to
extended-stay type as “upscale hotel with bedroom suite and full kitchen” to explain the product
offerings and eliminate any bias or inexperience with the extended-stay label.
In a comparison by age of respondents who chose this hotel type (upscale hotel with bedroom
suite and full kitchen) for a five-plus night leisure trip, interestingly, it was the younger respon-
dents who slightly favored the segment (ages 18-34 years), yet the average age guest at an
extended-stay hotel is in their mid-40s.
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When surveying travelers about the most important amenities, respondents did not prioritize the
When surveying travelers about the most important amenities for an extended business trip,
respondents said the most important amenity was free Wi-Fi.
Further inquiry with survey respondents shows that there may be a small correlation between
those who have traveled for business in the past year and use of extended-stay hotels. Business
travelers were more likely than leisure travelers to have ever stayed in an extended-stay hotel.
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Who are extended-stay customers?
The average extended-stay travelers are in
their mid-40s. The average length of stay is
14 days. The business mix is a target of 50
percentextended-stay(5ormorenights)
and50percenttransient(1-4nights,typi-
cally not part of a group) guests. This mix
hasn’t changed over time.
When looking at the behavior of loyalty
program members, Hilton Worldwide con-
sumer research shows that the loyal mid-
careertravelerprofiledrivesthestaysat
itsfocused-serviceproperties.(Extended-
stay brands are commonly categorized as
a focused service within hotel companies
— they also are called select-service.)
Among guests who are not loyalty program
members, business families and leisure
families comprise the majority of focused-
service guests. At Hilton, this category
includes: Homewood Suites by Hilton,
Home2 Suites by Hilton, Hilton Garden Inn
and Hampton Hotels.
ExtendedStayAmericas’research
indicates that seven out of ten travelers
wouldratherhaveakitchenthanafitness
room and among business travelers, they
want amenities to work rather than “fancy
stuff,”Seddonsays.“Thisrelatesto
generational trends and the idea of growing
up self-service. Doing for yourself is now
seen as the better way.”
ExtendedStayAmericaishalfwaythrough
a renovation program of all of its
properties and has already invested $650
million, according to Seddon. The focus
is on refreshing the guestroom, but also
improving operational aspects like the
booking process.
Homewood Suites by Hilton launched in
2013 its Take Flight program for
refurbishing older properties and adding
brand standards to new hotels. The brand
is 25 years old this year with 350 locations,
and desired to address some innovations in
the guest experience.
Eachhotelwillbeaffecteddifferentlyby
the program, says Duncan. “Owners of
more mature properties may decide to
undergo a full, top-to-bottom renovation
thatwillincludetheLodge,FrontPorch,
recreational areas, and in-suite upgrades,”
he says. “Owners of newer properties may
only need to add the outdoor kitchen, a
new brand standard.”
Market intelligence
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Where do guests come from?
No doubt, business travelers are a crucial
component of extended-stay demand, but
this target consumer covers a wide variety
of industries and requires a specialized
sales approach.
At the hotel level, a successful approach is to
identify strategic accounts and carve out by
marketsegment,saysSteveGiblin,President
andCEOofSilverBirchHotels&Resorts,
which operates four extended-stay hotels
in Canada in markets such as Vancouver,
Halifax,EdmontonandMississauga,which
includes Hilton Worldwide’s 99th and 100th
hotels in Canada, the dual-branded Hampton
Inn by Hilton and Homewood Suites by Hilton
Halifax-Downtown, Nova Scotia.
“We spend a lot of time dispersed in organiza-
tions in human resources or IT or transporta-
tion,”hesays.“It’shardertofindtheperson
who is going to book the rooms, but generally
once you do the word gets out pretty quickly.”
The sales education process is paramount,
says Homewood’s Duncan. “We spend a lot
of time with training and education to be able
to uncover and educate clients on the type of
extended-stay business that is out there. A
bigpartofthatisdefiningandexplainingthe
specificproductthatwillhelpyoutakecare
ofthesecustomers.Moreimportantly,most
people don’t necessarily realize they have
extended-stay business coming in.”
Travel Leaders Worldwide, a global travel
agency, has more than 2,600 extended-stay
hotelsinitsWorldwideHotelProgramwith
Q&AwithDonnaBrokowski,GMofpartner
solutions at Travel and Transport, one of the
largest travel management companies in
the U.S.
Do you think extended-stay hotels
are relevant to your clients?
Extended-stayfitsintoeachtypeofverti-
cal,butmanytimesinadifferentway.Ithas
evolved in the past 10 years. When it started it
was about four companies that said they were
going to make a hotel type with a kitchen and
one bedroom. Over the years, there’s been a
definiteblurringofthelines,butextended-stay
being available in the GDS was a good move
and also allowing the 1-4 night stay. Some of
our customers in corporate travel, they don’t
always just travel for two weeks, but if they are
introduced to the product on a regular basis,
then when they go two weeks to six months
they’re comfortable with what it is.”
Do brands do a good job of explaining
the product?
I think we have some brand overload going
on. I have been in quite a few customer meet-
ings where we’re talking to a hotel company
and instead of one brand, there are four
extended-stay brands within a company. So,
there tends to be brand confusion, because
of so many overlaps in the segment. When
our customers are listening to the global
sales team from the hotel company, even the
sales people have a hard time explaining it.
Isitdifficulttoprovethevalueofcost
savings on extended-stay amenities?
There are a general amount of customers
that put these hotels in the long-term stay
category and tend to avoid them when it
comes to their bid season. It’s unfortunate
because there is consistent measurable
financialvalueineachoneofthesehotels.It
takesalotofdiscussionduringRFPseason,
when we’re doing analytics on bids. Are these
ancillaries something you can count in sav-
ings in your company? If yes, then you need
to take an extra look at these hotels. … The
challenge is that every customer determines
savingsdifferently.Savingsonatravel-
relatedexpenseisadifficultmetricforsome
corporate travel planners.
Corporate travel insights
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bookings in the millions of dollars. Of its total
corporate bookings occurring from January
to July 2014, 5.08 percent were in the upper
tier of extended-stay and .93 percent were in
the lower tier.
AngieLicea,SVPofbusinessoperations,
technology development & meetings at
Travel Leaders Corporate, says the demand
for long-term stays, particularly among
corporate clients, occurs within these seg-
ments:
•Medical–temporarystaffing
•Retail&foodservice–restaurantopenings
•Energyandgas–crisisrecovery
•Consultingfirms
“Wefindthatamongthoseclientsinthe
energy and gas sectors, their travels are
typically last minute,” she adds. “What is
neededinthisspaceisflexibilityaround
booking and cancellations. Also, considering
how these travelers are putting themselves
in harm’s way in order to help the public in
times of need, they seek amenities to make
the stay more comfortable.”
When asked if the extended-stay product
was meeting the needs of clients, Licea says it
does: “Among those in the medical, retail and
food-service segments, their stays are typical-
ly booked way in advance and they typically do
not have any additional requirements beyond
whatisalreadyofferedbytheproperties.”
The new generation of extended-stay
travelers
The extended-stay guest is getting a lot
younger, very fast.
While the typical guests are in their mid-40s,
the target guest for Residence Inn is 33 years
old,saysDianeMayer,VPandglobalbrand
manager,ResidenceInnbyMarriott.
Why?
“This guest hasn’t been traveling for 20
years, maybe they’ve been traveling for two
years, he doesn’t understand the array of
brands,andhecomeswithadifferent
expectation about style and technology,”
Mayersays.
This guest wants the hotel to be fast and
transactional when they want it, and human
and customized when they need it. “It is a
verydifferentdefinitionofcustomerservice,”
Mayersays.“It’skeepingusonourtoes,but
it’s a really exciting time for product
development.”
All hotels are now focused on the
millennials — this demographic bolt that is
coming, Highland’s Skinner says. “You’re
seeing the product designed more with that
generation in mind and technology is going to
play a big part in that. It’s also the communal
spaces in lobbies, with lots of places where
people can sit together in social settings.
They are already being made like a
Starbucks.”
Design in the mid-price and upscale is more
modern than it used to be, he adds. Front
desks are more open, which allows for inter-
activeconnectionbetweenstaffandguests.
However, Hilton’s Kuhn says the millennial
target is still on the horizon. “They are a very
large cohort, but the thing is, the vast
majority are not traveling yet,” he says.
HiltonWorldwide’sVPoffranchise
development for the Americas, Bill Fortier,
echoes this sentiment.
“It’s misguided to try to develop a brand
largely around just one generation of travel-
ers, because the desires of those travelers
change as they age,” he says. “The millennials
will grow up over the next decade, and we’ve
got a whole lot of boomers out there, like me,
that don’t necessarily want to stay in a hotel
designed for our kids. Our brand teams are
constantly studying all of our customers and
work with our owners to adjust our products
to meet the needs of the travelers for each of
our brands.”
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For Homewood Suites’ part, the focus is
on making sure the brands are reaching the
45-year-old travelers as they continue in
their careers, Kuhn adds.
Another traveler trend is more
families with children staying in
extended-stay hotels.
“Manyfamilieswillcomeandvisitwhilethe
(businesstraveler)isonaproject,”Bardenett
says. “What happens is your business cus-
tomer can become a leisure customer.”
This requires high chairs, crayons and coloring
books in the lobby, but also quiet space for the
business traveler—in the same hotel, he says.
The customer also expects ease of booking,
Giblin says.
“The ease of booking has to evolve a bit, and
understanding of our pricing is something
customers need to understand,” he says.
“Manytimesit’sindividualsbooking,withno
meeting planner. We need to get that out to
the market.”
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Urban development: The new frontier
for extended-stay
Urban areas have been receiving more at-
tention for residential development with a
focus on live-work locations. According to the
Urban Land Institute, 61 percent of Ameri-
cans would choose smaller housing in favor of
a shorter commute to work and 53 per-
cent prefer neighborhoods close to shops,
restaurantsandoffices.Nowisthetimefor
extended-stay hotels to move out of com-
mercial areas and suburban corporate parks.
The urban evolution, has required the
extended-stayproductto“bendandflex,”
according to Homewood’s Duncan.
“When you put extended-stay in an urban
setting,it’sjustalittlebitdifferentinitsthink-
ing,” he says. “What we had, we knew was
working and customers love our product and
service,butit’snotaseasytofindthekind
of land we wanted and needed so we had to
thinkaboutitverydifferently.”
About 20 percent of Homewood’s pipe-
line is in urban developments, which is the
strongest urban pipeline the brand has ever
had, according to Duncan. The brand has
had a slow and deliberate urban approach,
but that is picking up as evidenced by
additions in major urban areas, he adds.
The brand’s latest prototype, Generation
9.2, allows owners to take advantage of
efficienciesinspace,butstayrelevantand
timely with what’s going on in the market,
Duncan says.
The U.S. development opportunities are in
urbanmarkets,saysResidenceInn’sMayer.
“Ten years ago, you could count on one hand
the number of urban properties, now we have
over 50.”
The current Residence Inn hotel base is 15
percent urban and the development
pipeline is 40 percent urban locations.
Mayerexplainsthatinthepast,the
sentiment might have been that it took more
experience to develop these products so,
“Why bother?”
“Now the philosophy is: ‘I understand the
concept, there are huge occupancy
premiums,’” she says. “So, frankly, it’s
prohibitively expensive to develop full-service
hotelsinNewYorkCityrightnow.Midtierin
Manhattanisaconsumerneedandan
industry need. It’s a hole that needs to be
plugged.”
Future demands affecting the segment
Homewood Suites by Hilton NY/Midtown, Manhattan, Times Square
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For the same reasons, the urban setting also
lends itself to adaptive reuse, according to
Duncan, speaking to CommercialProperty
Executive. “We are seeing more opportuni-
ties for adaptive reuse properties, like our
recently opened property in New York City’s
Midtown/TimesSquare-Southneighbor-
hood, as the number of failed apartment
andofficecomplexeshaveprovidedample
optionsfordevelopment.Manyofthese
properties are located in urban areas, making
them an appealing option for bringing hotel
products into these markets when there are
limited options for new construction.”
Dual-flag projects: Easier entry
into high-barrier markets
The major hotel brands have turned to
double-flagdevelopmentscontainingan
extended-stay component to enter new
markets and high-barrier-to-entry markets.
Some recent development examples just in
the past year, include:
The501-roomHotelMeliainAtlantawill
converttoaCrownePlazahotelandwillbe
convertedintoa360-roomCrownePlazaand
a 102-room Staybridge Suites hotel. Other
development plans for dual-branded IHG
hotels include a Holiday Inn and Candlewood
SuiteshotelinJoliet,Illinois,aCrownePlaza
and Staybridge Suites hotel in San Diego.
McKibbonHotelManagementwillbuild
ahoteltowerattheEpicentreuptownin
Charlotte, North Carolina, with an upscale AC
Hotel with 182 rooms and a 120-room
Residence Inn. The project is expected to
begin construction in early 2015.
In August, the 352-room Hampton Inn and
Homewood Suites by Hilton Chicago Down-
town/MagnificentMileopened.Homewood
currently has 12 dual-brand properties open.
Duncansaidtheconceptisasignificantpart
of the brand’s growth goals, but has been
used to facilitate development since 2005
whenaHilton/HomewoodSuitesopenedin
Philadelphia.
“It allows us to get into markets that are very
tight,” he says. “It also enables a larger key
count with an opportunity for two brands to
come together as one complex, which pro-
videsefficiencythatcanbeeffectivein
getting open in those markets. That has
turned out to be a tremendous story when
there’s not as much land to build hotels.”
ACourtyardbyMarriott/ResidenceInnby
MarriottcombinationprojectopenedatLA
Live in July in Los Angeles.
Particularlyininternationalmarketswhere
the extended-stay concept is truly foreign,
the dual brand model forces everyone to
thinkaboutthedifferencesofthetwohotels
and think about putting the right guests in
therightplace,Mayersays.
International markets:
Opportunities abound
The slow and steady supply growth of the
segment within the U.S. has meant even
slower development outside its borders.
In addition, the unique operating model of
extended-stay means that it’s not likely to be
thefirstdevelopmentprojectinamarket.
For instance, Canada is a mature market for
many extended-stay franchised brands. But
just ten years ago, there were no extended-
stay hotels in Canada, says Fortier. “It was a
good experiment. The owner was surprised
at how deep those markets were, how
accepting they were of added cost price per
room, how quickly customers migrated to
extended-stay.”
Homewood Suites has 16 properties open in
Canada.
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He added that the lower price point product
for Hilton, Home2 Suites, is just starting to
move into the Canadian market. The brand’s
first property opened in July in Edmonton.
And it’s still about finding owners that want
to take that “leap of faith” for a product
somewhat new to the market.
“They need to have faith in the businesses in
the market and they have to believe they can
charge an extra $10 dollars. It will happen and
it will surprise owners.”
Home2 Suites opened a property in
Querétaro, Mexico, which shows promise for
this price point of extended-stay within Latin
America, according to Fortier.
Duncan says a prototype specific to Latin
America is expected to launch in November,
with an emphasis on efficiencies of space
that are customary outside of the U.S. while
retaining the key elements of the
experience in the guestrooms and lobby/
manager’s reception area.
Hilton expects to open a total of 30
Homewood Suites in all markets during 2014,
and opened the same number in 2013. At the
close of the second quarter, the brand had
350 properties open in the Americas.
While there is demand for the product based
on business travel and length of stays
happening around the world, the extended-
stay segment is still in an immature state in
most foreign markets.
“The concept doesn’t exist outside of the
U.S.” Mayer says. But that doesn’t mean
extended-stay development is at a standstill.
The biggest pipeline for Residence Inn is in
the Middle East and Africa region, due to the
demand for extended-stay trips with
long-haul flights.
One third of all stays are extended-stay,
three quarters of the guests want the
segment’s definitive features and amenities,
and less than 10 percent of the supply is
extended-stay, Mayer adds.
The customer is the same outside of the
U.S., it’s just a matter of how many are
there, Fortier says. The cost of construction
is exacerbated in smaller markets or less
sophisticated markets like Mexico City, he
says. “Owners are always going to find the
cheapest way in.”
Mayer pointed to the dual-branded
prototype as a strong international
development engine for Residence Inn.
The Courtyard/Residence Inn development
Home2 Suites by Hilton Queretaro, MX
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in Jazan, Saudi Arabia, saw the Courtyard
component open November of last year and
the Residence Inn component is scheduled
to open in October, 2014. Yet, it is important
to note that the first Residence Inn in the
Middle East market just opened in 2012 —the
80-room Residence Inn by Marriott Manama
Juffair in Bahrain.
Luxury tier: A place for growth
There is a shortage of luxury extended-stay
product, says Highland’s Skinner. The
majority of the existing product falls within
the upscale price point.
“That product has to go into an urban area,”
Skinner says. “There are challenges in those
areas for finding sites, and also longer term in
urban tends to be corporate apartments.”
Smaller brands such as AKA and Affinia have
developed niches in major markets.
AKA currently has luxury extended-stay ho-
tels in New York (five locations), Philadelphia,
Washington, D.C., Los Angeles (Beverly Hills)
and London. Its website identifies the brand
as long stay comfort and value and its guests
as short term furnished apartment residents
(with celebrity testimonials, to boot), and
is borne from a company, Korman Com-
munities, focused on furnished apartments.
AKA was created in 2005, to meet an unmet
need in major cities for luxury extended-stay
apartments with hotel services, according to
the company. Korman created a new brand
with the purchase, renovation, and reposi-
tioning of eight high-rise properties in urban
areas, including four in midtown Manhattan.
The Affinia 50 Hotel offers incentives for
weekly booking, such as discounts at the
bar/lounge, credit for the hotel’s sundry
cupboard and free Wi-Fi. While also booking
short term hotel stays, the all-suite hotel
partners with FreshDirect for grocery
delivery and a local restaurant for room
service.
Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
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The newest prototypes in extended-stay
reflect increased efficiencies of space while
still maintaining areas for working, sleep-
ing and preparing meals, but over time the
extended-stay room has decreased in size.
“The biggest question we have to answer is
how do you deliver this notion of space and
upscale product when there’s not as much
land to build hotels?” says Duncan. The newest
Homewood prototype allows for more studio
suites with an open floor plan while still deliver-
ing an experience that is in line with the brand.
Mayer says the urban properties definitely
demand smaller, zoned guestrooms, but
deliver in other ways, such as the new high-
rise Residence Inn New York Manhattan/
Central Park, which offers views of Central
Park despite rooms being one-third smaller.
Changing expectations also allow for
guestroom changes.
For example, guests are not as particular
about closet space, says SilverBirch’s Giblin.
So the room can have an open spot, some-
times a column that also houses the safe and
coffee maker, with a place to hang clothes.
And moving toward a home feel, guests prefer
a couch to the typical guestroom chair, he
adds.
In the area of increasing attention to health
and wellness, Giblin says his extended-stay
properties have made the fitness rooms
bigger with better equipment and allowed for
floor exercises by providing padded flooring
throughout.
Development innovations and opportunities
Homewood Suites by Hilton Gen 9.2 prototype Studio Suite
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Fundamentals remain strong, and data shows why
Extended-stayhotelshaveenjoyedafavor-
able sentiment with owners and develop-
ers. Recent transactions demonstrate their
positivepositionamongprivate-equityfirms,
hotel developers and industry pundits.
In June, Starwood Capital Group entered
into an agreement to acquire all of the out-
standingstockofTMIHospitalityfromthe
TMIHospitalityEmployeeStockOwnership
Plan.Theacquisitionincludes188hotels,
the management company and the
development platform. Starwood Capital
owns 103 select-service hotels, according
to a press release. Following the close of the
acquisition, the company will control 291
select-service and extended-stay hotels
across 39 states in the U.S.
Also in June, Bloomberg reported that
BlackstoneGroupLPwasnearinganagree-
ment to buy a group of select-service
hotelsfromClarionPartnersLLCforabout
$800 million. The agreement would be
for 47 extended-stay Residence Inn and
Homewood Suites hotels, with a majority
located in the top 25 U.S. markets.
Moreover,ExtendedStayAmericaissued
asecondstockofferinginAugust,just10
months after its $565 million initial public of-
fering in November, 2013.
Earlierin2013,ValuePlace,aneconomytier
franchised brand, received a $100 million
investmentfromprivate-equityfirmLindsay
Goldberg LLC, with planned successive
investments to fuel the brand’s growth.
Extended-staypropertiesalsoarechanging
hands in smaller portfolio deals.
Chatham Lodging Trust, a real estate invest-
ment trust, acquired four Residence Inns
byMarriottinSiliconValley,comprising751
rooms, as part of the sale of the 51-hotel
portfolio for a net cash purchase price of
$272.6 million, or approximately $363,000
per room. Chatham is considering the
expansion of all four hotels to increase the
room count by 36 percent to a total of 1,023
rooms.
Owner/investor value proposition
The fundamentals paint a favorable picture
for the segment—at all price points. At its
most basic level, demand is outpacing sup-
ply, which is pushing occupancy and rate.
Supply growth is essentially at historical
lows, and there isn’t much concern for new
rooms being added, according to Highland’s
Skinner.Mostoftherevenueperavailable
room growth is achieved through rates,
because occupancy is reaching record
highs. “That doesn’t leave much more room
for occupancy growth, so rates are going up
wellabovetherateofinflation.”
Average daily rate is up 5.3 percent to
$84.88 for June year to date, according to
Highland data.
Rooms under construction were up 42.3
percent over the past year, according to
Highland. The upscale segment reported
the fastest rate of increase in new rooms,
mainly due to new construction.
“The most favored segment amongst
developers is the upscale extended-stay
segment, most tend to be franchised
brands, and that’s pretty much true over
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the last decade, the upscale segment has
grown the fastest, but what has also
happened now is that the shortage of
economy extended-stay product in
several large markets has become noticed
and there is going to be a fairly rapid
expansion in the economy segment.”
Skinner noted average occupancy in the
first quarter of 2014 was the highest
level in 13 years at 73.4 percent; demand
growth in that period was the strongest
since2011andRevPARgrowthwasthe
fastest since 2006.
The extended-stay segment led a bit on
the demand recovery, when compared to
the entire U.S., according to Jan Freitag,
SVP,STR.Demandgrowthturnedposi-
tive in June 2009 compared to December
2009 for the total U.S.
200920102011201220132014 (JuneYTD)
EXTENDED-STAY-DEMANDGROWTH(ROOMSSOLD)
2.7%14.9%5.3%1.4%3.5%5.7%
SOURCE:STR
While the U.S. extended-stay segment led the demand rebound in 2009, there was a slight slump in 2012. Demand growth even dipped into the negative at one point in April, 2012. It is now on a healthy rebound.
200920102011201220132014 (JuneYTD)
EXTENDED-STAY-OCCUPANCY
64.2%70.2%72.4%72.5%73.1%74.9%
SOURCE:STR
Although the entire hotel industry is susceptible to changes in the economic climate, the extended-stay sector and its inherent dependence on the long-term business stay showed sensitivity during the downturn. While it usually enjoys a significantoccupancypremiumovertheU.S. industry average, occupancy dipped to 52.7 percent in late 2008. For reference, the total U.S. average occupancy at the end of 2008 was 60.4 percent.
Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
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-
-
With nearly half of traveling Americans not having stayed in anextended-stay hotel, there is muchopportunity for growth with thepotential customer base for thissegment, which offers largergguestrooms, bedroom suites, fullkitchens and complimentarybreakfast.
Some of the key amenitiesoffered in the extended-staysegment rank high with travelers, yet are not the most important.
kitchen) option for leisure trips. ::: I don’t know what
an extended-stayhotel is
Respondents to a Ski survey aboutextended trips favored midscale hotelswith a restaurant by a slight margin. But all other hotel types were nearly equal inpreference.
• Robust fundamentals signal continued health of the extended-stay segment in the U.S. With occupancy at its highest level in 13 years, rate will continue to drive upward.
• The shortage of extended-stay rooms will continue to provide shelter to the segment’s performance. Demand continues to outpace supply.
• The average extended-stay guest, while currently in their mid-40s, is getting younger every day. Hotel companies are looking to this trend to make design and operation decisions.
• It is an exciting time for development in this sector, as the product has just started to reach many international markets and dual-branded projects allow for development in high-barrier-to-entry markets.
• The extended-stay product is one of the most profitable hotels to operate, after the initial investment premium during construction for the hallmark amenities: full kitchens, larger suites and homelike furniture and fixtures. The upscale tier has the most rooms under development.
• There is opportunity for increased awareness with consumers: While guests who have stayed are satisfied and loyal, many travelers aren’t aware of the key benefits of the product.
Key takeaways
Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
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Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014
