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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Hotel Occupancy Stable, Room Rates Rising Despite New Construction

The headline says it all.  Below is a January 30, 2017 article by Brendix Anderson, reprinted from National Real Estate Investor magazine (I added the bolds).


Springwood’s TRU by Hilton Lancaster, PA

Hotels had another great year in 2016, even though developers keep on opening new properties. For the whole year of 2016, the occupancy rate for hotels averaged 65.5 percent in the U.S., according to hotel data firm STR.

“It’s the highest occupancy rate ever recorded for a year,” says Jan Freitag, senior vice president of lodging insights for STR.

Occupancy rates have kept rising even though hotels face competition both from home-sharing websites like Airbnb and from hotel construction. However, occupancy rates are expected to dip slightly in 2017 and 2018, while demand will help keep room rates rising at a healthy rate.

There are now 183,000 hotel rooms under construction in the U.S., according to STR. That’s up 30 percent from 2015. This year, the inventory of hotel rooms is expected to grow by 2.0 percent. Demand for those hotel rose is expected to be high, but not high enough to keep the occupancy rate from falling on average by 0.5 percent in 2017.

Nevertheless, 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.

The danger of overbuilding would be higher if banks were more willing to make construction loans. Some large hotel projects in downtown areas have been delayed because banks are not willing to lend as much.

“The level of new construction is not as high as it would normally be given the occupancy numbers,” says Jeff Myers, managing consultant for CoStar Portfolio Strategy. “The financing is not there.”

“There has truly been a shift in new construction—in what is being built and where it is being built,” says Myers. More than a third of all the new hotel rooms that have opened since the recovery began in 2010 have opened in central business districts (CBDs). Before 2010, the share of all new hotels that opened in downtown areas was closer to one in six, according to CoStar.

“If there is a supply risk, the risk is going to be most pronounced downtown or in downtown submarkets,” says Myers.

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PwC Projection: Post-Election Optimism to Boost 2017 Hotel Revenues

PwC predicts a stronger rise in 2017 ADR and RevPAR than its earlier predictions.  This revision is based on post-election optimism which they say resulted in a stronger-than-projected 4th quarter for the U.S. hospitality industry.

Below is a reprint of a January 25, 2017 article from the Hotel Management Newsroom that gives the details:


A new forecast released by PwC US found strong industry performance took place during Q4 2016, including positive trends in demand and average daily rate. This was boosted by a post-election surge in consumer and business sentiment resulting in improved economic conditions, which PwC expects to result in continued revenue-per-available-room growth in 2017.

The forecast is calling for increased room supply to marginally outpace growth in demand for this year, resulting in an occupancy decline to 65.3 percent. This will be aided by an expected increase in corporate transient demand and improvements in ADR to drive RevPAR up 2.3 percent.

PwC draws its latest numbers from IHS Markit, which expects real gross domestic product to increase 2.3 percent in 2017 based on a fourth-quarter-over-fourth-quarter measurement. This is roughly 50 basis points higher than a forecast released in November by PwC, and is influenced by improving economic conditions traced to improving business and consumer confidence, positive financial markets and potential policy decisions focused on tax cuts and altered trade regulations.

“Based on a strong fourth quarter, we are encouraged by the trends we are seeing as we head into 2017,” Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC, said in the report. “However, we remain cautiously optimistic, as higher-than-previously anticipated increase in demand is still expected to be offset by increasing supply through the year.”

The updated estimates from PwC are based on a quarterly econometric analysis of the U.S. lodging sector, using an updated forecast released by IHS Markit and historical statistics supplied by STR and other data providers.

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December 19,2016

Multi-Brand Developer of the Year: Springwood Hospitality

Congratulations to the team at Springwood Hospitality on winning the 2015 Multi-Brand Developer of the Year Award for a truly impressive list of properties:

  • Home2 Suites by Hilton Lancaster
  • Home2 Suites by Hilton York
  • Home2 Suites by Hilton Harrisburg
  • Home2 Suites by Hilton Frederick
  • Tru by Hilton Lancaster
  • Tru by Hilton York
  • Hampton Inn & Suites by Hilton York
  • Hampton Inn & Suites by Hilton Hershey
  • Homewood Suites by Hilton Frederick
  • Homewood Suites by Hilton York

Springwood Hospitality is a valued partner and has demonstrated a passionate commitment to Hilton brands — enjoying success thanks to their “Springwood Essentials.” David tells us the first rule of thumb is, “Do what is fair and right – always.” Springwood seeks to improve the quality of life in the communities they serve. They attract successful neighbors and new job opportunities, partner with local not-for-profit organizations and deliver consistently superior performances, making them the perfect choice for Developer of the Year.

David says he learned an important lesson years ago, when he owned other brands and realized that Hampton by Hilton outperformed his best brand by 25%. He sold the others and is now starting construction on his fourth Hilton product in that market. “Hilton’s development of the Home2 and Tru brands has enabled us to grow rapidly. Our Hilton products don’t cannibalize one another, and we have become a force in the local hotel market. Today all of our under-construction and in-the-pipeline hotels are either Home2 or Tru. That won’t always be the case, but we are thankful that Hilton’s cutting-edge brand development has enabled us to profitably and aggressively grow a small hotel company,” he says.

Springwood Hospitality DNA
David and his team pride themselves on Springwood Hospitality’s hard-earned reputation. “Over the years we have been candid about our business, even when the news was unpleasant; folks have learned that when we tell them something, they can take it to the bank. If we miss a development deadline or we fall short of a sales projection, we tell the truth and explain the steps we’re taking to fix it. We give proper credit when things go really well. In time, people have learned that’s just our DNA. Today it’s much easier to get a necessary contract extension or extra attention from a local municipality, because folks don’t waste energy questioning our motives,” he says.

They’re just as meticulous about where they choose to develop. “We focus within a three-hour drive of our office, so we can make a meaningful visit to any hotel and still be home for (a late) dinner. Within that geography, we seek underserved submarkets with high barriers to entry. Our most successful hotels are in markets where it took five or more years to find our first site,” he adds.

David feels the hotel business is for those who pursue it full-time so they can push the envelope on technology, sales, service, revenue management, and brands.  “That’s where the profit is. We recently exited three other industries to devote 100% of our energy to what we do best: develop and manage hotels with excellence!”

He has sound advice to offer others seeking to emulate Springwood Hospitality’s success. “Partner with the best brand; get the best broker, engineer, architect and general contractor you can find. When the chemistry is right and you understand each other’s expectations, you’ve assembled a team that can accomplish amazing things. Hotel development requires putting a band together; you’re never playing solo. When every musician is up to the task, the sound is awesome.”

  • Reprinted from “Hilton New & Now” franchisee update newsletter 12-19-2016



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Demand Growth for Extended-Stay Sector Keeps up with Supply

homewood-suites-by-hilton-frederick-exterior-1080853Extended-stay hotels continue to remain popular among travelers needing more time and perhaps a little more room.  Please see the article in HotelNews.com to read more.

This nationally prominent research is compiled by the Highland Group, a highly reputable consulting firm in the Atlanta area.  Springwood uses Highland for substantially all of its market analysis and feasibility studies.

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