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Given current pricing and occupancy figures, HR and mobility professionals should consider extended stay hotels when deciding where to board business travelers.
"This type of lodging is a bargain right now," says Robert Mandelbaum, director of research for PKF Consulting USA in Atlanta.
Yet this relative bargain will not endure indefinitely. In fact, average daily rates for extended stay hotel rooms in the first quarter increased 7.2 percent compared to the same period in 2011, according to researchers at The Highland Group in Atlanta. That said, average daily rates can be misleading figures for HR professionals to use as bargaining chips; they represent just one of many negotiating factors. What’s more, when it comes to negotiating prices, extended stay hotels and traditional hotels have different price levers.
Understanding the nuances of this affordable lodging can serve HR and mobility professionals well, because the option appears to appeal to employees on assignments of five nights or longer.
"You can get something for a week or two compared to a temporary residence, which typically requires a minimum stay of 30 days," explains Stephen McGarry, New York-based director of global mobility for WPP, a global advertising and marketing services company with roughly 150,000 employees. "I do not receive much, if any, negative feedback from the employees who stay in these places, especially if their families are with them."
Overall, extended stay hotels represent a "solid value," agrees Ken Simpson, co-chief executive officer of Strong-Bridge LLC, a consulting firm based in Seattle with 126 employees. He lists perks ranging from more physical space to breakfast and, often, rewards programs for frequent guests.
What ‘Extended’ Means
The Highland Group publishes reports on the extended stay hotel segment that track economic indicators in addition to average daily rates. Its researchers define a property in this segment as "a hotel with a fully equipped kitchenette in each guest room, [that] accepts reservations and does not require a lease."
Extended stay hotels serve customers who typically stay five to 30 nights—and the business traveler remains the primary customer. Average prices range from $90 to less than $40 a night. Analysts place these hotels in tiers based on rates and service, although they differ on what tiers they use. The more-expensive brands, such as Residence Inn and Homewood Suites, tend to attract consultants and professionals in industries that require extensive travel, such as oil and gas. Brands such as Extended Stay America and Candlewood Suites often attract construction crews and other lower-paid employees.
Extended stay hotel rooms occupy a middle ground between traditional hotel rooms, which are suitable for transient travelers, and better-equipped corporate apartments, which are typically used for stays that exceed 30 days. Mary Ann Passi, chief executive officer of the Indianapolis-based Corporate Housing Providers Association, says corporate housing tends to be more spacious than an extended stay hotel room, while offering a "residential style of comfort."
Unlike extended stay hotels, corporate housing properties are not easily categorized into tiers, because corporate housing is governed locally; charges, occupancy rules and taxes vary by state or city. However, most corporate housing providers deliver a package of products and services that includes furnished apartments, utilities and housekeeping, Passi says.
Compared to traditional hotel rooms, most extended stay hotel rooms are designed for practical use. They are "usually less posh than what was seen during the heyday of business travel," Simpson says. But, he notes, extended stay hotels’ value resides in their space, extra amenities and services, reasonable rate structures and focus on business travelers.
Property owners and managers self-identify as being part of the extended stay hotel segment, notes Jan Frietag, senior vice president of STR, a hotel research firm based in Hendersonville, Tenn. This means there are no amenity standards; however, nearly all rooms, regardless of tier, offer some sort of cooking equipment and at least a mini-fridge.
"It’s going to look very much like a studio apartment," Mandelbaum says.
Upper-tier Homewood Suites’ kitchens, in every suite, come with full-size refrigerators, twin-burner stoves, microwaves, coffee makers, dishwashers and dining tables, albeit ones that double as workspaces. Upper-tier extended stay hotels offer full breakfasts, cocktail hours, dry cleaning and onsite laundries, 24-hour onsite convenience stores, and free grocery delivery, among other offerings.
The extended stay hotel segment’s attractive profit margins—an average 39.4 percent from 2006 to 2010—stem in part from what the hotels do not offer: extensive front-desk or concierge service or daily housekeeping in most cases.
Longer stays negate the need for these services, thereby lowering overhead costs. Generally, extended stay hotels charge lower rates than traditional hotels; it is usually significantly less expensive to put an employee in an extended stay hotel than a similar traditional hotel for one week. The average daily rates for extended stay hotel rooms in the first quarter, according to The Highland Group, were:
STR’s researchers calculate an average dailyrate for all extended stay hotels. Through May, that figure was $81.38—higher than the rates for 2009-11 but still not quite back to the pre-recession rates of 2007-08.
Other measures indicate that the segment has improved significantly since the recession and appears healthy. In May, STR reported that there were more than 3,023 extended stay hotels, more than at any other point in the industry segment’s history.
Average occupancy rates have returned to a pre-recession level at 71.5 percent for the first quarter, according to The Highland Group, significantly higher than the occupancy rate for traditional hotels.
"This relatively high level of occupancy allows hoteliers to increase their room rates," Frietag notes. "We expect the trend of high occupancies and strong room rate growth to continue through 2013."
How to Get the Best Price
Given the growth prospects for extended stay hotels, HR and mobility professionals will need to gather facts about various brands and make educated choices to get the best bargains. McGarry says there is room for negotiations on price. How much room depends on many factors, including volume. Large companies with highly mobile workforces can negotiate deals, based on minimum numbers of nights in a year, with specific brands or even individual hotels in a city. When negotiating rates with extended stay hotels, consider the following:
Amenities. There is some, but not much, room for negotiation on amenities, say HR professionals and hotel analysts. Simpson has negotiated for full breakfasts included in the rate, for example.
Location. The locale greatly influences price. Pittsburgh, for example, costs less than New York City.
Timing. Most hotel markets are at least "somewhat seasonal," Mandelbaum notes, so buyers may get discounts during lulls. But not all timing that influences price is seasonal: A major sports event, such as the World Series, may spike prices.
Length. Length of stay, Mandelbaum says, is an important negotiation lever. If an HR professional can place an employee in an extended stay hotel for three weeks or more, for example, the property manager may be willing to lower the weekly rate.
Volume. "In our experience, the biggest negotiation leverage is number of nights in a given fiscal period," Simpson reports. For example, Strong-Bridge recently sold a project that required its consultants to travel to the client’s location for extended periods throughout the duration of the project. "When we explained to [an extended stay] vendor that they could expect about 800 nights," Simpson says, "we were able to secure a rate that represented a more than 50 percent savings compared to the vendor’s typical online rates."
Adds Mandelbaum: "Volume is clearly attractive to owner-operators" of extended stay hotels. "If you can demonstrate that you’re going to have a high volume of truly extended stay demand, that’s an attractive piece of business."
And that significant volume should be reflected in the price you pay to put your road warriors in highly practical accommodations.
The author is a business writer based in Austin, Texas, who covers human resource and finance issues.
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