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@skift.com. WWW.SKIFT.COM WWW.HOMEWOODSUITES.COM Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels About us 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 fullsize 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. **Available at select properties. 3 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Executive summary Homewood Suites by Hilton Dallas Frisco It’s the hotel segment that boasts the greatest profit margins, leadingedge 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 increasing 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 requirement—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 differentiate themselves with a uniquely developed customer service model for their guests that includes evening receptions, limited housekeeping and complimentary breakfast. 4 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels 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. 5 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Table of contents About Skift About Us 3 Skift is the largest industry intelligence and marketing platform in travel, providing news, information, data and services to all sectors of the world’s largest industry. 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 Dual-flag developments: Easier entry into high barrier markets International markets: Opportunities abound Luxury tier: A place to grow Development Innovations and Opportunities 21 Owner/Investor Value Proposition 22 Fundamentals remain strong, and data shows why The Extended-Stay Hotel: An Overview 24 Key Takeaways 26 About Skift 27 6 Based in New York City, Skift has deep experience in identifying and synthesizing existing and emerging trends, in its daily coverage of the global travel industry, through its Skift Trends Reports and its data insight from SkiftIQ competitive intelligence service.Skift is the business of travel. Visit skift.com for more. Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Introduction Homewood Suites by Hilton Atlanta Midtown lobby Often considered a niche hotel segment that is unknown to the average consumer, the extended-stay hotel segment has experienced 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 developers 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. 7 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels 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 extendedstay, which is a big imbalance.” In terms of performance metrics, the midyear 2014 average occupancy 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? 8 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels Extended-stay consumer awareness Built into the longer-stay guest relationship is It’s a good position for a segment to be able the ability to get valuable customer feedback to get that valuable guest feedback, but during the stays of five or more nights (the industry players understand that there is average stay is 14 days). While limited in still work to do in terms of getting the word number, the staff is trained to be welcoming, out—improving consumer awareness and accommodating and to seek out ways to make acceptance of the extended-stay product as guests feel at home. applicable to their travels. Tom Bardenett, president of the Crossroads “We, as an industry, just haven’t done a good Hospitality Division (select-service division) job telling that story,” Seddon says. “We of Interstate Hotels & Resorts and EVP of need to introduce people to the category. If operations, says it’s a very unique scenario you had a choice of full kitchen why wouldn’t for interaction. you take it?” “It’s one of the easier segments to actually Owners share similar sentiment regarding the operate—you don’t have to guess at their need for explanation to new customers. needs, because of the length of stay you can establish a relationship with long-term Navin Dimond, President and CEO of guests so they continue to want to stay,” Stonebridge Companies, an owner and says Bardenett, whose company manages developer of major hotel brands, including several extended-stay brands, including 10 several extended-stay brands, says his sense is Homewood Suites properties. that the extended-stay concept is misunderstood or not understood. “They are a very open book, because they are there so long, that interaction allows the “If someone knows the product they under- operator to really get to know their guests.” stand it, but if they are a new customer, even if it has ‘suites’ in the name, it doesn’t tell you “The longer they stay the more they’ll tell you what they need.” -Tom Bardenett 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.” 9 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels “It’s not as well understood as we’d like it to be.” - Navin Dimond beverage cost savings. Dimond says it requires explaining the website are finding extended-stay hotels amenities and showing customers most often by searching by hotel name, photographs, videos and floor plans. despite the fact that “kitchenette” is A review of keyword search habits on TripAdvisor indicates that visitors to the offered as an amenity on the major city “Once they see it they say they like it, but hotel search pages. In fact, less than one we need to make sure customers know percent of site visitors are searching for what we offer,” he says. “Our job as a “kitchenette,” according to TripAdvisor segment and a brand is to make sure we’re data. doing that.” This suggests that most often, site visiBecause hotel selection is highly tors already know an extended-stay brand influenced by pricing, increased awareness when they express interest in this type of extended-stay amenities could do much of accommodation, which does support to persuade value-conscious travelers. marketing intelligence that once someone While there can be a $10 premium in a per- stays at an extended-stay property, they night comparison of room rates, travelers have a high satisfaction rating. However, might not realize that extended-stay hotels had more visitors chosen the “kitchenette” offer complimentary hot breakfasts, amenity as a means of finding the product, evening receptions with a selection of it would suggest that visitors understand snacks and of course, the full in-room the extended-stay offering implied by a kitchens that offer even more food and guestroom with a kitchenette. 10 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels 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 preferences 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 respondents who slightly favored the segment (ages 18-34 years), yet the average age guest at an extended-stay hotel is in their mid-40s. 11 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels When surveying travelers about the most important amenities, respondents did not prioritize the key differentiators of the extended-stay segment. Travelers said the most important amenity for an extended leisure trip was complimentary breakfast. While this is definitely a strength of extended stay, most midscale hotels offer free breakfast as well. Extended-stay hotels could focus on the quality (usually a hot meal) of their breakfast to further differentiate themselves. 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. 12 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels Market intelligence Who are extended-stay customers? want amenities to work rather than “fancy stuff,” Seddon says. “This relates to The average extended-stay travelers are in generational trends and the idea of growing their mid-40s. The average length of stay is up self-service. Doing for yourself is now 14 days. The business mix is a target of 50 seen as the better way.” percent extended-stay (5 or more nights) and 50 percent transient (1-4 nights, typi- Extended Stay America is halfway through cally not part of a group) guests. This mix a renovation program of all of its hasn’t changed over time. properties and has already invested $650 million, according to Seddon. The focus When looking at the behavior of loyalty is on refreshing the guestroom, but also program members, Hilton Worldwide con- improving operational aspects like the sumer research shows that the loyal mid- booking process. career traveler profile drives the stays at its focused-service properties. (Extended- Homewood Suites by Hilton launched in stay brands are commonly categorized as 2013 its Take Flight program for a focused service within hotel companies refurbishing older properties and adding ­— they also are called select-service.) brand standards to new hotels. The brand is 25 years old this year with 350 locations, Among guests who are not loyalty program and desired to address some innovations in members, business families and leisure the guest experience. families comprise the majority of focusedservice guests. At Hilton, this category Each hotel will be affected differently by includes: Homewood Suites by Hilton, the program, says Duncan. “Owners of Home2 Suites by Hilton, Hilton Garden Inn more mature properties may decide to and Hampton Hotels. undergo a full, top-to-bottom renovation that will include the Lodge, Front Porch, Extended Stay Americas’ research recreational areas, and in-suite upgrades,” indicates that seven out of ten travelers he says. “Owners of newer properties may would rather have a kitchen than a fitness only need to add the outdoor kitchen, a room and among business travelers, they new brand standard.” 13 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels Where do guests come from? “We spend a lot of time dispersed in organizations in human resources or IT or transporta- No doubt, business travelers are a crucial tion,” he says. “It’s harder to find the person component of extended-stay demand, but who is going to book the rooms, but generally this target consumer covers a wide variety once you do the word gets out pretty quickly.” of industries and requires a specialized sales approach. The sales education process is paramount, says Homewood’s Duncan. “We spend a lot At the hotel level, a successful approach is to of time with training and education to be able identify strategic accounts and carve out by to uncover and educate clients on the type of market segment, says Steve Giblin, President extended-stay business that is out there. A and CEO of SilverBirch Hotels & Resorts, big part of that is defining and explaining the which operates four extended-stay hotels specific product that will help you take care in Canada in markets such as Vancouver, of these customers. More importantly, most Halifax, Edmonton and Mississauga, which people don’t necessarily realize they have includes Hilton Worldwide’s 99th and 100th extended-stay business coming in.” hotels in Canada, the dual-branded Hampton Inn by Hilton and Homewood Suites by Hilton Travel Leaders Worldwide, a global travel Halifax-Downtown, Nova Scotia. agency, has more than 2,600 extended-stay hotels in its Worldwide Hotel Program with Corporate travel insights Q&A with Donna Brokowski, GM of partner ings where we’re talking to a hotel company solutions at Travel and Transport, one of the and instead of one brand, there are four largest travel management companies in extended-stay brands within a company. So, the U.S. there tends to be brand confusion, because of so many overlaps in the segment. When Do you think extended-stay hotels our customers are listening to the global are relevant to your clients? sales team from the hotel company, even the Extended-stay fits into each type of verti- sales people have a hard time explaining it. cal, but many times in a different way. It has evolved in the past 10 years. When it started it Is it difficult to prove the value of cost was about four companies that said they were savings on extended-stay amenities? going to make a hotel type with a kitchen and There are a general amount of customers one bedroom. Over the years, there’s been a that put these hotels in the long-term stay definite blurring of the lines, but extended-stay category and tend to avoid them when it being available in the GDS was a good move comes to their bid season. It’s unfortunate and also allowing the 1-4 night stay. Some of because there is consistent measurable our customers in corporate travel, they don’t financial value in each one of these hotels. It always just travel for two weeks, but if they are takes a lot of discussion during RFP season, introduced to the product on a regular basis, when we’re doing analytics on bids. Are these then when they go two weeks to six months ancillaries something you can count in sav- they’re comfortable with what it is.” ings in your company? If yes, then you need to take an extra look at these hotels. … The Do brands do a good job of explaining challenge is that every customer determines the product? savings differently. Savings on a travel- I think we have some brand overload going related expense is a difficult metric for some on. I have been in quite a few customer meet- corporate travel planners. 14 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels bookings in the millions of dollars. Of its total years, he doesn’t understand the array of corporate bookings occurring from January brands, and he comes with a different to July 2014, 5.08 percent were in the upper expectation about style and technology,” tier of extended-stay and .93 percent were in Mayer says. the lower tier. This guest wants the hotel to be fast and Angie Licea, SVP of business operations, transactional when they want it, and human technology development & meetings at and customized when they need it. “It is a Travel Leaders Corporate, says the demand very different definition of customer service,” for long-term stays, particularly among Mayer says. “It’s keeping us on our toes, but corporate clients, occurs within these seg- it’s a really exciting time for product ments: development.” • Medical – temporary staffing All hotels are now focused on the • Retail & food service – restaurant openings millennials — this demographic bolt that is • Energy and gas – crisis recovery coming, Highland’s Skinner says. “You’re • Consulting firms seeing the product designed more with that generation in mind and technology is going to “We find that among those clients in the play a big part in that. It’s also the communal energy and gas sectors, their travels are spaces in lobbies, with lots of places where typically last minute,” she adds. “What is people can sit together in social settings. needed in this space is flexibility around They are already being made like a booking and cancellations. Also, considering Starbucks.” how these travelers are putting themselves in harm’s way in order to help the public in Design in the mid-price and upscale is more times of need, they seek amenities to make modern than it used to be, he adds. Front the stay more comfortable.” desks are more open, which allows for interactive connection between staff and guests. When asked if the extended-stay product was meeting the needs of clients, Licea says it However, Hilton’s Kuhn says the millennial does: “Among those in the medical, retail and target is still on the horizon. “They are a very food-service segments, their stays are typical- large cohort, but the thing is, the vast ly booked way in advance and they typically do majority are not traveling yet,” he says. not have any additional requirements beyond what is already offered by the properties.” Hilton Worldwide’s VP of franchise development for the Americas, Bill Fortier, The new generation of extended-stay echoes this sentiment. travelers “It’s misguided to try to develop a brand The extended-stay guest is getting a lot largely around just one generation of travel- younger, very fast. ers, because the desires of those travelers change as they age,” he says. “The millennials While the typical guests are in their mid-40s, will grow up over the next decade, and we’ve the target guest for Residence Inn is 33 years got a whole lot of boomers out there, like me, old, says Diane Mayer, VP and global brand that don’t necessarily want to stay in a hotel manager, Residence Inn by Marriott. designed for our kids. Our brand teams are constantly studying all of our customers and Why? work with our owners to adjust our products to meet the needs of the travelers for each of “This guest hasn’t been traveling for 20 our brands.” years, maybe they’ve been traveling for two 15 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels For Homewood Suites’ part, the focus is This requires high chairs, crayons and coloring on making sure the brands are reaching the books in the lobby, but also quiet space for the 45-year-old travelers as they continue in business traveler—in the same hotel, he says. their careers, Kuhn adds. The customer also expects ease of booking, Another traveler trend is more Giblin says. families with children staying in extended-stay hotels. “The ease of booking has to evolve a bit, and understanding of our pricing is something “Many families will come and visit while the customers need to understand,” he says. (business traveler) is on a project,” Bardenett “Many times it’s individuals booking, with no says. “What happens is your business cus- meeting planner. We need to get that out to tomer can become a leisure customer.” the market.” 16 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Future demands affecting the segment Homewood Suites by Hilton NY/Midtown, Manhattan, Times Square Urban development: The new frontier but that is picking up as evidenced by for extended-stay additions in major urban areas, he adds. Urban areas have been receiving more at- The brand’s latest prototype, Generation tention for residential development with a 9.2, allows owners to take advantage of focus on live-work locations. According to the efficiencies in space, but stay relevant and Urban Land Institute, 61 percent of Ameri- timely with what’s going on in the market, cans would choose smaller housing in favor of Duncan says. a shorter commute to work and 53 percent prefer neighborhoods close to shops, The U.S. development opportunities are in restaurants and offices. Now is the time for urban markets, says Residence Inn’s Mayer. extended-stay hotels to move out of com- “Ten years ago, you could count on one hand mercial areas and suburban corporate parks. the number of urban properties, now we have over 50.” The urban evolution, has required the extended-stay product to “bend and flex,” The current Residence Inn hotel base is 15 according to Homewood’s Duncan. percent urban and the development pipeline is 40 percent urban locations. “When you put extended-stay in an urban setting, it’s just a little bit different in its think- Mayer explains that in the past, the ing,” he says. “What we had, we knew was sentiment might have been that it took more working and customers love our product and experience to develop these products so, service, but it’s not as easy to find the kind “Why bother?” of land we wanted and needed so we had to think about it very differently.” “Now the philosophy is: ‘I understand the concept, there are huge occupancy About 20 percent of Homewood’s pipe- premiums,’” she says. “So, frankly, it’s line is in urban developments, which is the prohibitively expensive to develop full-service strongest urban pipeline the brand has ever hotels in New York City right now. Midtier in had, according to Duncan. The brand has Manhattan is a consumer need and an had a slow and deliberate urban approach, industry need. It’s a hole that needs to be plugged.” 17 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels For the same reasons, the urban setting also Duncan said the concept is a significant part lends itself to adaptive reuse, according to of the brand’s growth goals, but has been Duncan, speaking to Commercial Property used to facilitate development since 2005 Executive. “We are seeing more opportuni- when a Hilton/Homewood Suites opened in ties for adaptive reuse properties, like our Philadelphia. recently opened property in New York City’s Midtown/Times Square-South neighbor- “It allows us to get into markets that are very hood, as the number of failed apartment tight,” he says. “It also enables a larger key and office complexes have provided ample count with an opportunity for two brands to options for development. Many of these come together as one complex, which pro- properties are located in urban areas, making vides efficiency that can be effective in them an appealing option for bringing hotel getting open in those markets. That has products into these markets when there are turned out to be a tremendous story when limited options for new construction.” there’s not as much land to build hotels.” Dual-flag projects: Easier entry A Courtyard by Marriott/Residence Inn by into high-barrier markets Marriott combination project opened at LA Live in July in Los Angeles. The major hotel brands have turned to double-flag developments containing an Particularly in international markets where extended-stay component to enter new the extended-stay concept is truly foreign, markets and high-barrier-to-entry markets. the dual brand model forces everyone to think about the differences of the two hotels Some recent development examples just in and think about putting the right guests in the past year, include: the right place, Mayer says. The 501-room Hotel Melia in Atlanta will International markets: convert to a Crowne Plaza hotel and will be Opportunities abound converted into a 360-room Crowne Plaza and a 102-room Staybridge Suites hotel. Other The slow and steady supply growth of the development plans for dual-branded IHG segment within the U.S. has meant even hotels include a Holiday Inn and Candlewood slower development outside its borders. Suites hotel in Joliet, Illinois, a Crowne Plaza In addition, the unique operating model of and Staybridge Suites hotel in San Diego. extended-stay means that it’s not likely to be the first development project in a market. McKibbon Hotel Management will build a hotel tower at the Epicentre uptown in For instance, Canada is a mature market for Charlotte, North Carolina, with an upscale AC many extended-stay franchised brands. But Hotel with 182 rooms and a 120-room just ten years ago, there were no extended- Residence Inn. The project is expected to stay hotels in Canada, says Fortier. “It was a begin construction in early 2015. good experiment. The owner was surprised at how deep those markets were, how In August, the 352-room Hampton Inn and accepting they were of added cost price per Homewood Suites by Hilton Chicago Down- room, how quickly customers migrated to town/Magnificent Mile opened. Homewood extended-stay.” currently has 12 dual-brand properties open. Homewood Suites has 16 properties open in Canada. 18 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Home2 Suites by Hilton Queretaro, MX He added that the lower price point product While there is demand for the product based for Hilton, Home2 Suites, is just starting to on business travel and length of stays move into the Canadian market. The brand’s happening around the world, the extended- first property opened in July in Edmonton. stay segment is still in an immature state in And it’s still about finding owners that want most foreign markets. to take that “leap of faith” for a product somewhat new to the market. “The concept doesn’t exist outside of the U.S.” Mayer says. But that doesn’t mean “They need to have faith in the businesses in extended-stay development is at a standstill. the market and they have to believe they can The biggest pipeline for Residence Inn is in charge an extra $10 dollars. It will happen and the Middle East and Africa region, due to the it will surprise owners.” demand for extended-stay trips with long-haul flights. Home2 Suites opened a property in Querétaro, Mexico, which shows promise for One third of all stays are extended-stay, this price point of extended-stay within Latin three quarters of the guests want the America, according to Fortier. segment’s definitive features and amenities, and less than 10 percent of the supply is Duncan says a prototype specific to Latin extended-stay, Mayer adds. America is expected to launch in November, with an emphasis on efficiencies of space The customer is the same outside of the that are customary outside of the U.S. while U.S., it’s just a matter of how many are retaining the key elements of the there, Fortier says. The cost of construction experience in the guestrooms and lobby/ is exacerbated in smaller markets or less manager’s reception area. sophisticated markets like Mexico City, he says. “Owners are always going to find the Hilton expects to open a total of 30 cheapest way in.” Homewood Suites in all markets during 2014, and opened the same number in 2013. At the Mayer pointed to the dual-branded close of the second quarter, the brand had prototype as a strong international 350 properties open in the Americas. development engine for Residence Inn. The Courtyard/Residence Inn development 19 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels in Jazan, Saudi Arabia, saw the Courtyard AKA currently has luxury extended-stay ho- component open November of last year and tels in New York (five locations), Philadelphia, the Residence Inn component is scheduled Washington, D.C., Los Angeles (Beverly Hills) to open in October, 2014. Yet, it is important and London. Its website identifies the brand to note that the first Residence Inn in the as long stay comfort and value and its guests Middle East market just opened in 2012 —the as short term furnished apartment residents 80-room Residence Inn by Marriott Manama (with celebrity testimonials, to boot), and Juffair in Bahrain. is borne from a company, Korman Communities, focused on furnished apartments. Luxury tier: A place for growth AKA was created in 2005, to meet an unmet need in major cities for luxury extended-stay There is a shortage of luxury extended-stay apartments with hotel services, according to product, says Highland’s Skinner. The the company. Korman created a new brand majority of the existing product falls within with the purchase, renovation, and reposi- the upscale price point. tioning of eight high-rise properties in urban areas, including four in midtown Manhattan. “That product has to go into an urban area,” Skinner says. “There are challenges in those The Affinia 50 Hotel offers incentives for areas for finding sites, and also longer term in weekly booking, such as discounts at the urban tends to be corporate apartments.” bar/lounge, credit for the hotel’s sundry cupboard and free Wi-Fi. While also booking Smaller brands such as AKA and Affinia have short term hotel stays, the all-suite hotel developed niches in major markets. partners with FreshDirect for grocery delivery and a local restaurant for room service. 20 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 Development innovations and opportunities Homewood Suites by Hilton Gen 9.2 prototype Studio Suite The newest prototypes in extended-stay Changing expectations also allow for reflect increased efficiencies of space while guestroom changes. still maintaining areas for working, sleeping and preparing meals, but over time the For example, guests are not as particular extended-stay room has decreased in size. about closet space, says SilverBirch’s Giblin. So the room can have an open spot, some- “The biggest question we have to answer is times a column that also houses the safe and how do you deliver this notion of space and coffee maker, with a place to hang clothes. upscale product when there’s not as much And moving toward a home feel, guests prefer land to build hotels?” says Duncan. The newest a couch to the typical guestroom chair, he Homewood prototype allows for more studio adds. suites with an open floor plan while still delivering an experience that is in line with the brand. In the area of increasing attention to health and wellness, Giblin says his extended-stay Mayer says the urban properties definitely properties have made the fitness rooms demand smaller, zoned guestrooms, but bigger with better equipment and allowed for deliver in other ways, such as the new high- floor exercises by providing padded flooring rise Residence Inn New York Manhattan/ throughout. Central Park, which offers views of Central Park despite rooms being one-third smaller. 21 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels Owner/investor value proposition Extended-stay hotels have enjoyed a favor- located in the top 25 U.S. markets. able sentiment with owners and developers. Recent transactions demonstrate their Moreover, Extended Stay America issued positive position among private-equity firms, a second stock offering in August, just 10 hotel developers and industry pundits. months after its $565 million initial public offering in November, 2013. In June, Starwood Capital Group entered into an agreement to acquire all of the out- Earlier in 2013, Value Place, an economy tier standing stock of TMI Hospitality from the franchised brand, received a $100 million TMI Hospitality Employee Stock Ownership investment from private-equity firm Lindsay Plan. The acquisition includes 188 hotels, Goldberg LLC, with planned successive the management company and the investments to fuel the brand’s growth. development platform. Starwood Capital owns 103 select-service hotels, according Extended-stay properties also are changing to a press release. Following the close of the hands in smaller portfolio deals. acquisition, the company will control 291 select-service and extended-stay hotels Chatham Lodging Trust, a real estate invest- across 39 states in the U.S. ment trust, acquired four Residence Inns by Marriott in Silicon Valley, comprising 751 Also in June, Bloomberg reported that rooms, as part of the sale of the 51-hotel Blackstone Group LP was nearing an agree- portfolio for a net cash purchase price of ment to buy a group of select-service $272.6 million, or approximately $363,000 hotels from Clarion Partners LLC for about per room. Chatham is considering the $800 million. The agreement would be expansion of all four hotels to increase the for 47 extended-stay Residence Inn and room count by 36 percent to a total of 1,023 Homewood Suites hotels, with a majority rooms. Fundamentals remain strong, and data shows why The fundamentals paint a favorable picture Average daily rate is up 5.3 percent to for the segment—at all price points. At its $84.88 for June year to date, according to most basic level, demand is outpacing sup- Highland data. ply, which is pushing occupancy and rate. Rooms under construction were up 42.3 Supply growth is essentially at historical percent over the past year, according to lows, and there isn’t much concern for new Highland. The upscale segment reported rooms being added, according to Highland’s the fastest rate of increase in new rooms, Skinner. Most of the revenue per available mainly due to new construction. room growth is achieved through rates, because occupancy is reaching record “The most favored segment amongst highs. “That doesn’t leave much more room developers is the upscale extended-stay for occupancy growth, so rates are going up segment, most tend to be franchised well above the rate of inflation.” brands, and that’s pretty much true over 22 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels SKIFT REPORT 2014 EXTENDED-STAY - DEMAND GROWTH (ROOMS SOLD) the last decade, the upscale segment has grown the fastest, but what has also happened now is that the shortage of 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. 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.” 2009 2010 2011 2012 2013 2014 (June YTD) 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 since 2011 and RevPAR growth was the 2.7% 14.9% 5.3% 1.4% 3.5% 5.7% SOURCE: STR fastest since 2006. EXTENDED-STAY - OCCUPANCY The extended-stay segment led a bit on 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 significant occupancy premium over the U.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. the demand recovery, when compared to the entire U.S., according to Jan Freitag, SVP, STR. Demand growth turned positive in June 2009 compared to December 2009 for the total U.S. 2009 2010 2011 2012 2013 2014 (June YTD) SOURCE: STR 23 64.2% 70.2% 72.4% 72.5% 73.1% 74.9% - - Respondents to a Ski survey about extended trips favored midscale hotels with a restaurant by a slight margin. But all other hotel types were nearly equal in preference. kitchen) option for leisure trips. Some of the key amenities offered in the extended-stay segment rank high with travelers, yet are not the most important. : : : I don’t know what an extended-stay hotel is With nearly half of traveling Americans not having stayed in an extended-stay hotel, there is much opportunity for growth with the potential customer base for this segment, which offers larger guestrooms, bedroom suites, full kitchens and complimentary breakfast. Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels Key takeaways • 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. 26 SKIFT REPORT 2014 Homewood Suites by Hilton + Skift Present: The Changing Business of Extended-Stay Hotels About Skift Skift is the largest industry intelligence and marketing platform in travel, providing news, information, data and services to all sectors of the world’s largest industry. Based in New York City, Skift has deep experience in identifying and synthesizing existing and emerging trends, in its daily coverage of the global travel industry, through its Skift Trends Reports and its data insight from SkiftIQ competitive intelligence service.Skift is the business of travel. Visit skift.com for more. Like what you see? Skift’s new content studio SkiftX helps brands such as Amadeus, American Express, Egencia, Hilton, Peak Adventure Travel and others create thought leadership in the global travel industry, through trends reports, research, branded content, social media audits and other content marketing initiatives, and helps distribute through its industry marketing platform. Contact us for more details: Rafat Ali, Founder & CEO, Skift ra@skift.com 212-564-5830 27 SKIFT REPORT 2014