The way of the corporate road warrior, the denizen of high-end chain hotels across the nation, has taken its toll on corporate travel budgets, and that means business travelers are increasingly opting for extended-stay hotels.
Extended-stay hotels — rooms that usually include a separate living area or living room with a pull-out sleeper and a full-kitchen or kitchenette — quadrupled in growth in the late 1990s. They are even starting to catch on in space-starved Manhattan, though the notion of a “cost-effective” room is relative in the Big Apple.
According to hospitality industry tracker Lodging Econometrics, 127 extended-stay properties are expected to open in the United States by year’s end, the highest rate of increase among any hotel segment.
But most of this growth has been in and around suburban corporate centers, airports, and outlying metropolitan areas. Finding appropriate urban properties has proven more challenging given increased spatial requirements, construction costs, and fierce competition for available sites, say industry analysts.
Nevertheless, mid-level extended-stay brand hotels are now opening in a number of urban locales across the country and have already successfully established themselves in cities such as Washington, D.C., Atlanta, and Chicago.
“It’s been proven that in urban markets, extended-stay works,” said industry analyst Nolan Hecht of Cushman & Wakefield’s Hospitality Transactions Group, pointing to hotel company brands such as Marriott’s Residence Inn, Hilton’s Homewood Suites, and Westin Extended Stay, which now aggressively target urban centers. Hecht said he expects to see Homewood and Westin extended-stay hotels in Manhattan by 2008 or 2009.
But can branded extended-stays prove themselves in Gotham without having to sacrifice the savings that make them attractive to the frequent-meeting circuit?
Based on three-month occupancy numbers at the Marriott Residence Inn Times Square, the answer appears to be yes. Currently, a single night at the hotel, located at Sixth Avenue and 38th Street, costs $289 for a 400-square-foot room, with complimentary amenities including a breakfast buffet, evening social hour, grocery shopping service, high-speed Internet access, lounge with pool table, and 5,000 square feet of meeting space.
The nightly cost may place it above the Manhattan average daily room rate of $219 in February, according to a market report by PKF Consulting, but given the room size (100 square feet above average) and prime location across from Bryant Park, early indications are that the chain has hit a home run.
Occupancy rates are presently at 92 percent capacity, with 50 percent of those rooms falling within the seven-plus night extended-stay category in which discounts begin to accrue, according to Jim McCabe, director of sales and marketing for the Residence Inn Times Square.
“I can tell you that any branded extended-stay hotel would love to go into Manhattan,” said Mark Skinner, a partner at the Highland Group, a hospitality consulting firm. “The problem is the length of time it takes to develop the property,” said Skinner, pointing by way of example to the Residence Inn Times Square, which took five years to develop.
Franchisees would typically not be willing to ride out that length of time, though developer Harry Gross’ handling of the Residence Inn may serve as a blueprint for others to follow.
The newly completed project also includes a significant residential component — 96 condo units on the top 10 floors — and relies upon additional revenue streams coming in from 8,500 square feet of prime retail space along Sixth Avenue and a second-floor public parking garage.
The Residence Inn also deviated from the company prototype a bit, with the bulk of the rooms configured as studios without segregated living and sleeping areas or real cook-tops in the kitchenette. “This is a not a Marriott footprint,” said McCabe.
Indeed, extended-stay hotels entering urbanized areas make exceptions to typical specifications and often blur the lines between extended-stay and full-service transient hotels, Skinner said.
Extended-stay hotels have been part of Manhattan’s commercial landscape before. The traditional extended-stay hotel model in the borough was unbranded and tended to be at the highest price points, said Skinner. But then, in the late 1990s, when hotel rates began to peak, they moved toward a full-service model with much of the extended-stay hotels displaced to outlying areas such as Jersey City and Secaucus.
“The challenge is the real estate exposure and the perception that extended-stay is a low-cost option,” said John Moser, the chief marketing officer for Affinia Hospitality, which formerly owned and managed the Manhattan East Suite Hotels, at one time the best-known upscale extended-stay option in Manhattan. At its peak, the company ran nine properties scattered through Midtown and the Upper East Side.
The company gradually walked away from the market, but then, even at its height, occupancy was never more than 30 percent, Moser said. Now, such departures are creating opportunities for new entrants.
“We are big fans of urban locations,” said Rebecca Wyatt, senior vice president of Homewood Suites by Hilton, which currently operates 170 hotels and has 110 more in the pipeline.
Wyatt said the brand is actively looking to enter Manhattan and is entertaining a number of conversion possibilities. “Conversions can turn around in as little as a year once you get everything structured,” she added.