Global Update: The Growing Extended-Stay Segment

By Staff -- HOTELS Magazine, 11/1/2006

The first ELEMENT will debut near Boston in 2008.height="133" vspace="3" border="0" />

UNITED STATES Given the continued robust performance of extended stay, it was only a matter of time before heavy hitters Starwood Hotels & Resorts and Global Hyatt Corp. would want to vie for a piece of the action enjoyed by the likes of Marriott’s Residence Inn and Hilton’s Homewood Suites, the two power players in the upscale extended-stay segment. Thus, in what is poised to be an increasingly competitive landscape, Starwood has introduced ELEMENT, an extended-stay offshoot of its Westin brand, and Hyatt has debuted Hyatt Summerfield Suites, the new brand arising from Hyatt’s early 2006 deal for the former Wyndham brand. While their approach may be different, both intend to raise the bar on design and service to draw to a new generation of extended-stay guests.

Meanwhile, despite their leading positions in the segment, the established U.S. players are not about to sit back and wait to lose market share. Rather, the legacy brands are in the midst of re-imaging initiatives intended to keep pace with industry trends and refresh their appeal.

As competition heats up, top of mind for all operators is distribution, as James Woods, vice president of acquisitions and development for Starwood Real Estate Group, explains: “It’s a challenging market for sites. There’s a lot of demand for good dirt.” However, as the extended-stay segment continues to be one of the top-performing sectors in the industry with high occupancies and even greater profit margins, optimism abounds with each company planning significant growth, both domestically and, in many cases, abroad.

New Kids In Town

After months of speculation, Starwood has finally named its foray into the extended=stay segment with the launch of ELEMENT, a strictly new-build concept affiliated with Westin and targeting the upper tier of the extended-stay market. According to Sue Brush, senior vice president for Westin, ELEMENT aims to redefine the segment via smart design with features inspired by nature, thus creating a space where guests can be “in their element.” Think dramatic window walls in the lobbies, water features and extensive outdoor landscaping. In guestrooms, smart design means urban residential appeal, including space-saving solutions such as custom closets, oversized bathrooms and kitchens with stainless-steel appliances. Westin signatures such as its Heavenly Bed and workout facilities will be present as well—although beyond such products Starwood still hasn’t determined how the Westin name will be incorporated into the new brand.

While Starwood is aiming for a very upscale product, the company has been working on value engineering to keep construction costs in line with its competitors. “We’ve created a tool kit for developers that is the most detailed and complete as anything we’ve done,” Woods says, adding that ELEMENT’s prototype footprint will be US$100 per sq. ft. less than its competitors. “Our rooms are a bit smaller (and he says the entire project is about 12,000 sq. ft or 1,115 sq. m smaller than competitors) but we’ve made a more efficient use of space. We spent our money in a better way,” he says, explaining how Starwood came up with its US$110,000 to US$130,000 per key development cost, excluding land.

As for growth plans, Woods says, domestically, the company is targeting the “first 100 highest RevPAR markets” with high barriers to entry, including business parks, urban centers, airports and even resorts. The first ELEMENT will debut in 2008 alongside a new aloft project in Lexington, Massachusetts, an affluent Boston suburb, on a site Starwood already owns. Wood says to date there are 13 development deals signed, and that while Starwood is investing in getting the first projects open, the plan is to grow primarily via franchising.

Further, Starwood plans to take ELEMENT abroad to markets in China, Western Europe and the Middle East. “We believe extended stay fits a growing need. Although we will have to modify [our concept] market to market, developers have given us a great response,” Brush says.

Global Hyatt Corp. also is looking to re-energize extended stay while leveraging the power of the Hyatt brand with its new concept for Hyatt Summerfield Suites. “We went through all the research on how to enter the segment and decided to acquire and thought this brand was an excellent play for us,” says Jim Abrahamson, Hyatt’s senior vice president of acquisitions and development.

“With 35 to 50 hotels at initial launch (the company also will rebrand some of its Hawthorn Suites properties to Hyatt Summerfield Suites) it gives us a good head start over scratch branding. The other thing we liked was that this brand felt bigger than it is because the hotels are located in high profi le, coastal locations. They are very strategically oriented.”

As for the design, Hyatt also is targeting urban residential ambience that is more in tune with how people live—great rooms with oversized kitchens for social gathering, higher ceilings, state-of-the-art entertainment centers and multiple work-friendly zones.

“We set our design on modern condo life,” Abrahamson explains. In the public spaces, Hyatt designed the lobby as a neighborhood hub, complete with coffee bar, high quality breakfast, and nightly beer and wine receptions.

Abrahamson says the first renovations/conversions are under way to open in the first quarter of next year, and he expects the first new-build prototype to open in the Chicago area near Hyatt headquarters. The company plans to grow the brand to 100 domestic hotels by the end of 2010, he adds.

height="114" vspace="3" border="0" /> A rendering for Hyatt Summerfield Suites illustrates the brand’s open layout design.

Leaders Revamp Offerings

At 500 units, Marriott’s Residence Inn is clearly the power player in the upscale extended-stay fi eld, enjoying RevPAR growth at around 10% year over year. This 30-year-old brand, however, is not sitting on the sidelines when it comes to product innovation.

Last year it introduced a new modernized guestroom with a more residential appeal, including porcelain, granite and stainless steel. Now the brand is looking to revamp its public spaces. “We’ve been known for having phenomenal service culture and community feel for years, but we did guest research and found that we had the opportunity to create more inviting, engaging spaces in the public areas to foster a better sense of community,” says Laura Bates, Marriott’s senior vice president, extended-stay brand management. The company soon will roll out its new lobby design, including a hub around the hearth, more private nook areas and much more emphasis on the outdoor space. The brand also is looking to introduce more events to draw people together and is stepping up service culture training for employees. “We believe our culture is our competitive advantage, so we’re investing significantly in programs to kick-start and reignite the flame for that culture—to wow guests and make associates happier,” Bates says. “There’s an incredible amount of devotion to making people feel they are among friends.” As for expansion, Residence Inn is on target to open 25 to 30 properties a year, Bates says, and while not ready to announce specifics, she shares that the company is eyeing several overseas markets.

“We’re doing market research in several areas to get an idea of market sizing and have done some concept testing as well.” Hilton’s Homewood Suites, another leader in the upscale extended-stay segment with 184 properties, also is revamping its image to give a more updated look. It is a bit less country, a bit more Pottery Barn, explains Rebecca Wyatt, senior vice president for Homewood.

“We’re updating the product to stay competitive, but we don’t want to be too trendy,” she says. “By 2008 we’ll have all new bedding in all the hotels (50% have it now), and we’re incorporating more color like you would see at home.” Homewood also is adding granite counters and replacing carpet with hardwood floors. As a result, developer interest remains strong. Fourteen new properties are slated to open before year-end, and 110 projects are in the pipeline.

The biggest development trend the brand is seeing is urban development, Wyatt says, citing Nashville and Seattle as two examples. Internationally, Canada and Mexico are strong contenders.

The target is 30 new hotels in Canada within two years and another 30 in the pipeline (it currently has four open and five in the pipeline). In Mexico, Homewood is aiming to have five to 10 new hotels in the next three years. Beyond North America, Wyatt says Homewood will wait and see how its sibling Hilton Garden Inn does in Europe and Asia before the company moves forward with expansion plans around the world.