The extended-stay segment is gaining momentum in Canada, as a growing number of professionals and families seek the comforts of home on their travels. In-suite kitchens, free breakfast, free Wi-Fi and extra elbow room are major drawing cards for guests needing more than a few days’ stay.
The numbers show this category remains a popular choice for guests, regardless of economic ups and downs. According to Brian Stanford, national managing director for PKF Consulting Canada in Toronto, extended-stay properties are comparable to the industry average in terms of ADR ($138.96 in 2013 and $144.24 in 2014, compared to the industry average of $132.41 in 2013 and $137.20 in 2014).
But where the segment shows significant strength is in its occupancy rates. “The numbers there are dramatically stronger,” Stanford says, noting that in 2014 extended-stay occupancy rates averaged 71.9 per cent, seven points higher than the industry norm. “That goes a long way to explaining what the segment does: cater in large part to individuals who are on assignment, relocation or in a market for longer periods of time,” he adds.
Stanford notes the segment has seen four- to five-per-cent supply growth in the last four to five years, estimating that current market inventory for the extended-stay segment is now in the 10-per-cent range. “The fact that occupancy numbers are holding with that much supply growth speaks to the strength of the segment.”
During the past 15 years, Canada has seen the growth of upper-tier brands such as Homewood Suites by Hilton, Residence Inn by Marriott and Staybridge Suites (IHG); as well as mid-scale offerings such as TownePlace Suites by Marriott, Home2 Suites by Hilton and Candlewood Suites (IHG). But Canada’s extended-stay segment is less developed than the U.S., where these properties have been populating the landscape for 30 years. Stanford attributes that to the natural lag in development trends between the two countries. “[Before the] 2000 economic challenges, projects kept getting pushed off [in Canada]. But when we finally hit good market conditions, developers were ready to take any opportunities they could.”
While a larger portion of projects have been developing higher-tier brands in primary markets, Stanford expects to see increased development in secondary and tertiary markets in the next few years. “Developers tend to gravitate to larger markets because of high demand, yet there are lots of secondary and tertiary locations where larger upscale extended-stay operations simply don’t make sense because of the added capital costs.”
The major challenge for extended-stay property developers is finding the business case that works best in a region. Because room sizes tend to be larger (370 to 400 sq. ft. for a studio with a kitchen area, and up to 450 sq. ft. for a one bedroom compared to 320 to 340 sq. ft. for a standard hotel room), most extended-stay properties are new builds in the 130- to 150-room range; conversions typically would not allow for the room size needed to add kitchens and amenities, Stanford notes.
The larger room size and associated capital costs have become factors in the increased trend to mixed-use properties. “Rather than building a 200-room extended-stay or select-service hotel, developers might do a mix of 120 of one and 80 of the other,” Stanford says. Dual-branded properties offer a number of advantages, not the least of which is attracting a more diverse clientele and providing more choices under one roof. Depending on the property in question, the model allows operators to share fitness facilities, general managers, foodservice functions, sales teams and engineering staff.
Calgary’s MasterBuilt Hotels Ltd., which owns the master territorial development rights in Canada for Microtel Inn & Suites by Wyndham, is currently developing a dual-branded Courtyard and Residence Inn by Marriott in Calgary. COO Eric Watson says in many communities, extended-stay comes with a hefty price tag. “With 50 per cent more space per room, you end up with higher per-door costs. However, combining brands means you can have one general manager and share amenities to drive the operating costs down.”
MasterBuilt plans to pursue the co-branded market more aggressively, says Watson. “There are a number of markets in Canada where this concept would be a good fit. And while Canada has been a laggard in the extended-stay product class, there are a fair bit of development opportunities for new construction in larger urban markets. There is no question the market is under-serviced.”
Steve Giblin, CEO of SilverBirch Hotels & Resorts in Vancouver also has a keen interest in expanding the extended-stay model in Canada. SilverBirch’s efforts began with the opening of the 200-room Residence Inn by Marriott in Vancouver in 2012. “It exceeded our expectations in every way,” Giblin says. “While it was previously an extended-stay property, profitability quadrupled once it was renovated under the Marriott brand.” He reports that occupancy rates average in the mid-80-per-cent range (average room rate is about $200 a night); with 45 per cent of guests staying three days or longer.
SilverBirch’s Home2 Suites by Hilton in West Edmonton opened in 2014 and attracts business from the oil and gas sector. The 127-room property’s daily room rates are just below $150. “We’re big believers in extended-stay in Canada,” Giblin says, adding that it will soon begin construction on the world’s largest Residence Inn — a 400-room hotel in Calgary’s Beltline District, slated to open in 2018. The mixed-use project will also include a residential tower, podium parking, retail and restaurant facilities.
Another stand-out project is the 125-room Homewood Suites by Hilton Halifax-Downtown, formerly The Citadel Halifax hotel. It’s part of a mixed-use project that includes a 316-room Hampton Inn by Hilton, retail space and a conference centre. “By replacing the Citadel we were able to put in two hotels, double our room count and cut costs in half using only half the property. The rest of the land was sold to Great West Life for a residential tower,” Giblin explains.
Giblin contends there are plenty of under-represented markets for the extended-stay segment. “Toronto is a big spot for exploring mixed-use opportunities. It’s hard to get anything standalone in the downtown area unless you have 1,000 rooms.”
Secondary and tertiary markets can be more challenging because of the capital costs and the fact that many communities are dependent on single-source providers. “We looked hard at a project in northern B.C. but turned it down,” Giblin explains. “We realized if something happened to the major industry there, we would be left high and dry.”
In the future, Giblin believes mixed-use is the way to go because it holds great appeal for guests. “Some want a king room. Others want a kitchen. Customers love to have choices.” Whatever the business model, all indicators show that extended-stay is here for the long haul.
Written By: Denise Deveau
Volume 27, Number 5