The Highland Group
In this section, we look at the extended stay and corporate housing markets across
North America, including Canada, with contributions from experts in both sectors.
First, Mark Skinner from the Highland Group provides an overview of both extended
stay and corporate housing markets in the region.
With the number of corporate housing units and extended-stay hotel rooms approaching
400,000 North America is the world’s largest region for extendedstay lodging product.
Although the supply of units is less than 7% of total lodging supply, annual room
revenues approached $9 billion in 2010. Room night demand and room revenues at US
extended-stay hotels reached all-time highs in 2010 as the segment rebounded strongly
from the cyclical low point in 2009. Significant growth in US extended-stay room
supply is very unlikely to occur before 2013. A RevPAR increase of 7% to 9% is expected
in 2011 and the potential is high for a stronger RevPAR gain in 2012.
Because the great majority of US corporate housing units are leased inventory they
can be adjusted quickly in response to changes in demand. Unit supply increased
by 2,926 in 2010 and it is forecast to rise by another 2,000. That forecast is likely
to be conservative if overall lodging demand growth projections for 2011 are accurate.
The slowdown in new hotel construction in the US coincides with an upswing in the
lodging business cycle. This gives the US corporate housing segment an opportunity
to gain a greater share of overall lodging room revenues over the next few years.
During the last expansionary period between 2002 and 2007, US corporate housing
room revenues almost doubled.
In 2010 the US corporate housing rebounded from the deep recession the entire lodging
industry experienced in 2009. Revenues increased by approximately 7.4% to $2.47
billion annually. Nominal revenues in 2010 were about equal to annual revenues in
the 2005-2006 periods.
Managing inventory kept occupancy levels high relative to other lodging segments
and helped US corporate housing providers avoid discounting average rate in 2010.
At $115.88 in 2010, the corporate housing average rate was 1.3% higher than in 2009.
This compares to the 0.9% decline in average rate for upscale extended-stay hotels,
the lodging segment that is most similar to corporate housing.
In 2010 the US corporate housing market was estimated at approximately 65,396 units.
Corporate housing provider companies project a 3% increase in units in 2011. This
is a conservative estimate considering the more aggressive growth in overall lodging
demand and the corporate housing industry’s ability to make quick changes in inventory.
If the early indications of another strong increase in lodging demand continue in
2011, corporate housing can be expected to increase inventory by more than 3% in
With the contraction of the corporate housing inventory and growth in hotel supply
since 1997, the industry’s share of total US lodging inventory fell from 1.75% in
2007 to 1.33% in 2009, before increasing to 1.36% in 2010.
Due to the upscale extended-stay segment’s rapidly expanding inventory, corporate
housing’s share of this comparable lodging segment declined from 42% to 33% over
the same period. Restricted financing for new development means that the growth
rate in hotel room supply will slow considerably in the foreseeable future and corporate
housing’s market share should increase as a result.
This trend occurred during the last post recessionary period as well. At that time,
corporate housing inventory grew more than 42% in five years to peak at 78,036 units
in 2007. According to Smith Travel Research (STR), the hotel room supply increased
by just under 4% over this same period.
Global Serviced Apartments Report 2011-12 Most corporate housing units in the US
are leased which makes it relatively easy for corporate housing providers to adjust
inventory according to expected changes in demand. Consequently, there can be wide
variations in inventory in specific markets and sub-markets. In 2010 five of the
larger markets in the US (Austin, Baltimore, Miami, Northern New Jersey, and San
Antonio) reported inventory growth of 20% or more. Conversely Charlotte, Memphis
and Raleigh- Durham-Chapel Hill reported inventory loss ranging from 13% to 22%.
Average rates started to climb overall occupancy in the US corporate housing industry
increased to 89.2% in 2010, up from 88.1% in 2009. Prior to the recession, occupancy
trended closer to 90% each year. As the economy improves, occupancy is expected
to return to this level.
Average rates started to climb in all sectors of the hotel industry around the middle
of 2010 and this has continued into 2011. Corporate housing rates followed a similar
trend. According to STR, hotels reported a 0.1% reduction in average rate over the
same period. Corporate housing also fared better than extended-stay hotels which
reported a 2% fall in average rate in 2010 from 2009.