US extended stay construction reaches near-20 year high

George Sell George Sell Uploaded 16 August 2018


US: The latest report from The Highland Group shows both demand and supply growth for the US extended stay sector.

The company's 2018 Mid-Year US Extended-Stay Lodging Market Report says that extended-stay hotels "continue to absorb record levels of new rooms while maintaining occupancy above their long-term average".

The two-year trend of accelerating supply growth and declining occupancy reversed in 2017, and demand has grown faster than supply for the last four consecutive quarters. After picking up in the second half of 2017, ADR growth moderated over the last six months but is well ahead of inflation.

The report says: "The exceptionally good extended-stay hotel performance in 2018 is most welcome as rooms under construction climb above 50,000. The supply growth rate is accelerating but only incrementally and is short of the most recent peak levels that occurred throughout most of 2009. Recent trends in rising demand and high occupancy indicate extended-stay RevPar growth should continue to exceed general inflation over the next year."

The supply of extended-stay hotel rooms approached 465,000 at mid-year 2018, a rise of 6.9 per cent compared to the same period in 2017.

Extended-stay average occupancy was 79.7 per cent in the second quarter of 2018 compared to 70.2 per cent STR reported for the overall hotel industry.

A 3.8 per cent increase in extended-stay ADR in the second quarter of 2018 was a little below the first quarter but ahead of the 2.9 per cent gain STR showed for the overall hotel industry. Economy and mid- prices segments posted more than five per cent ADR growth in the second quarter of 2018.

There were 53,892 extended-stay hotel rooms reported under construction at the end of the second quarter 2018. This is the largest number under construction at any mid-year or year-end point in at least 19 years. Mid-price segment construction is surging but the economy segment reported a decline which is likely to be temporary. The ratio of actual rooms opening within one year of reporting construction has started varies each year, but the annual rate of increase in supply is growing. At mid-year 2018, rooms under construction totalled 12 per cent of rooms open.

An annual increase in supply this high has not occurred since 2000 when the base of rooms was much lower and it is not likely to happen during this cycle. The actual increase in supply is likely to be about seven per cent in 2018 and perhaps as high as nine per cent in 2019, says the report.

"Extended-stay hotel occupancy above its long-term average and the strongest demand growth trend since the post-recession recovery provide a solid foundation to absorb the record number of new rooms under construction," said Mark Skinner, partner at The Highland Group.


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