Hotels hope extended stays extend revenue

STERLING, Va. -- Steven Bethea browsed the newspaper in the lobby of Marriott mar TownePlace Suites, getting ready to start the day recently as one of hundreds of contract workers who report to business parks near Washington's Dulles International Airport.

A 350-square-foot hotel room with a full kitchen has been his home here for more than two months. "This is real comfortable for me," says the engineering student, who's in town for a three-month job for the U.S. Postal Service. "I like to cook and eat healthy. My dishes are washed when I come home at night. I've been kind of spoiled here."

In the refurbished lobby, workstations with flat-screen monitors provide Internet access. Free coffee flows throughout the day. An 8-foot-tall town map points out nearby stores. Within a half mile, several other midscale hotels — including Holiday Inn and Hampton Inn — compete for the travelers who come and go from Dulles.

They cater to business consultants and workers, flight attendants and vacationers toting their kids.

Extended-stay hotels like these have been popular among hotel companies in recent years because they're cheaper and easier to build. With blocks of guests staying weeks at a time, they also have fewer check-ins to process and report consistently higher occupancy rates than other hotels do. The three- to four-story wood-frame buildings are located mostly in suburbs, near airports and business parks. Rooms are equipped with a separate living area, full kitchen and laundry facilities.

Several companies, including Marriott, Starwood Hotels hot and Hilton, have launched brands or redesigned their chains in recent months to reflect a modern decor sought by a younger clientele.

However, expansionist days for one of the hotel industry's most reliably profitable segments may be coming to an end. "It's been the fastest-growing segment in revenue since 1995," says Mark Skinner of The Highland Group, a hotel research firm in Atlanta. "Demand for extended stay has never gone down. But based on industry demand so far, that'd be difficult this year."

In 2008, the number of extended-stay rooms grew 6.7% to nearly 300,000, the highest growth rate in seven years, Highland Group says.

But demand isn't keeping up with supply. Demand for these rooms — or the number of room nights actually sold — rose 3.4% in 2008, according to Smith Travel Research. Occupancy still fell to 68.6% in 2008 from 72% in 2007.

Owners have no choice but to proceed with projects they've started. But deals that target 2010 or 2011 could be in jeopardy if the economy doesn't turn around. Among the latest industry initiatives:

•Hilton Hotels recently launched its second extended-stay chain, Home2 Suites by Hilton, aimed at young travelers seeking a budget option. It'll be a more affordable offshoot of Hilton's existing extended-stay chain, Homewood Suites.

Hilton has 25 signed deals and hopes to launch its first property in fall 2010. Emphasizing light colors and modern decor, Home2 Suites will charge about $100 a night vs. $120 at Homewood Suites, whose rooms are about 30% larger.

•Hyatt Hotels is redesigning Summerfield Suites, with a prototype that opened in Sandy, Utah, in November. The 29-property chain plans to add one more this year and possibly five more by early 2010 that reflect the new look. Among the new features: flat-screen TV, countertop kitchen and clutter-free lobby.

"We've seen the economy causing financing issues. The length of time for a project to get through the pipeline is just generally stretching out," says Jim Chu, of Hyatt Hotels.

•Starwood Hotels launched its Element brand last year, which was marketed as a cheaper version of W Hotels. Element has three locations, and Starwood plans to open five more this year.

The chain emphasizes bright and clean colors, with design inspiration from nature, the company says. Element hopes to stand out from other extended-stay chains by being in urban centers or next to shopping malls.

•Marriott is renovating TownePlace to compete with more upscale competitors, says Peggy Fang Roe of Marriott. Gone are floral curtains, brass frames and plaid sofas. They're replaced with bright red signs and "a cleaner, simpler look and feel" inspired by Ikea, Crate & Barrel and Target, she says. About 90% of the properties — out of 164 — have undergone change. About 90 more TownePlaces are waiting to be developed, depending on what Roe calls "the lending environment."