Monthly Archives: March 2017

Extended-Stay Hotel Performance Varies Widely by Location

This is a follow-up to my last two posts about how schizophrenic local U.S. hotel markets are right now.  Some are booming, and others are not.

Highland Group performs nearly all of our feasibility studies.  They are the authority on the Extended Stay segment of the U.S. hotel industry.  The following summary of their most recent quarterly study of the industry confirms that “the industry” is either great, poor or somewhere in between, depending on the local market:

“The Highland Group’s much anticipated annual report on the US extended-stay hotel industry for 2017 is now hot off the press. This year two reports and a subscription option are available. The US Extended-Stay Lodging Market report covers the US and the 100 Largest Markets report features the nation’s 100 largest Metropolitan Statistical Areas (MSAs). Major results for extended-stay hotels include:

  • Room nights available up 6.2% compared to 2015
  • Room night demand up 5.4% over the last year
  • Rooms under construction at record high
  • Average rate up 4.2% compared to 2015
  • RevPar up 3.5% over last year
  • Double-digit RevPar growth in 13 MSAs
  • RevPar declines in 24 MSAs
  • Double-digit supply growth forecast in more than one third of MSAs in 2017
  • No supply growth expected in more than 30 MSAs in 2017″

What’s not obvious in this summary is that it only include the nation’s top 100 markets.  That includes ONLY larger markets, such as Harrisburg, PA and Frederick, MD for instance; but it ignores the markets, such as York and Lancaster, PA where most of OUR hotels are located.  The advent of Hilton’s robust Home2 Suites brand is disrupting the extended-stay segment in these smaller markets that are not included in the Highland study.

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Fake news? Or only part of the story?

Yesterday a concerned investor sent me an article with the following headline: “Hotel Overbuilding Softens New York, Hurts Austin, Crushes Oklahoma.”  Sounds ominous. The tag line went on to say, “New construction is hurting the hotel business in markets across the country.”

The article quoted industry expert Jan Freitag, senior vice president for STR Global: “There are a ton of markets where occupancy rates have already declined.”  Let’s break it down.  For hotels, the supply/demand equation is always local.  Freitag could have said, “There are a ton of markets where occupancy rates are reaching new record highs in 2017,” but that’s not as interesting.

What’s lost in the spin is Freitag’s assertion of “Record-breaking occupancy rates from last year (2016),” in the same article.  Freitag described 2016 U.S. hotel occupancy this way in another recent article posted HERE:  “It’s the highest occupancy rate ever recorded for a year.”  Wow, that’s really good!  Why is this great news lost?

That sentence in the scary article finishes with, “will slightly decline in 2017 and 2018.”  The story becomes the projected decline instead of the record performance.  The second article provided more detail, with Freitag saying that “occupancy rates are expected to dip slightly in 2017 and 2018, while demand will help keep room rates rising at a healthy rate.”  Yes, friends, hotel demand is measured by RevPAR (revenue per available room), a measurement that accounts for both occupancy and ADR (average daily rate).

We find the whole story in the article I posted HERE:  “Revenue per available room is expected to rise 2.3 percent in 2017, according to STR. Room rates should also rise 2.8 percent on average.”  STR has also forecast rising RevPAR in 2018, as a matter of fact.

The Rest of the Story…

Hotel supply/demand is a localized phenomenon.  Be wary of hand-picked local scenarios.  Some local markets will enjoy healthy economies yet have only modest growth in room supply, while others will endure a poor local economy coupled with aggressive room supply growth.   Words like “hurts” and “crushes” only apply (as far as I’ve read and heard) to oil/fracking markets, which Springwood has carefully avoided.  I chased sites in Pittsburgh a couple years ago until I realized that their newfound growth was fracking-driven.  Then I ran away.  That growth evaporated after several new hotels were built.

York and Lancaster, PA are seeing a little occupancy erosion – some of it from our own new products – but  both markets opened two hotels last year and two more are opening this year (including our TRU by Hilton).  Occupancy has softened but the new rooms are being absorbed at about the rate that our market studies had forecast.  That’s the key.

We’re setting record revenues right now in Hershey, PA and Frederick, MD. One new hotel is on the way in each of those markets, so the gains will moderate, but it’s still record revenue.  I could write an article about those two markets headlined, “New Hotel Construction Crushes Growth Rate of Record-Setting Revenues,” but who would read it?


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TRU by Hilton Brand Explodes onto the Scene

309AAFF900000578-3415256-image-a-68_1453839027296See this article in today’s Hotel News Now online:  TRU by Hilton

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