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Extended Stay Housing – Tucson Grows With The Industry

extended stay housing TucsonMarkets which have the highest number of corporate apartments – sorry, residential apartments under construction – are Dallas, Washington D.C., Austin, Houston, Denver, and New York. That is a good indicator that there should be some easing in obtaining inventory. New York might be the exception there because its vacancy’s remarkably low, a low 2%.

Just as an indicator of what happened at the end of 2012, downtown Seattle had, I believe it was 13 or so apartment towers under construction, and the inventory available over the next year went up 10% from the previous year.

So there are good signals that with the new apartment units coming online that we should see some supply growth this year, which is counter to the last two years.

And when you don’t get any supply growth, you have a contraction with high occupancy already there, demand is likely to go down, so units demanded in the US actually went down 4.2% on 2014 compared to 2013.

There was only a small decrease in occupancy, though; it went from 88.6 to 88.1 percent. Average rate for corporate housing was up 3.9%. Revenue per available room up 3.3. And room revenues were down under one half of 1%, so even despite demand, revenues received within the industry, in terms of room revenues if you like, was essentially the same in 2013 as it was in 2012.

Canadian Numbers for Extended Stay Housing

Our search on Canada is a lot younger than it is in the US. We’ve been researching Canada for about 6 years and the US for about 15, so we’re pleased to see that each year we get more participation in Canada, and I think that’s one of the reasons why we see unit supply up more than 11% in 2013 to 2012, and actually, back since 2009, it’s up more than 80%.

Unit demand in Canada was up 5.3% over the previous year. Occupancy was down at 5.3%, and average rate was also down in Canada. Need to stress on the average rate that where you have a relatively small sample of apartment units and you can get big changes from year to year and certain markets heavily influencing the direction of the data, in three areas of Canada in 2013, average rate actually went up. It’s just in the bigger areas with more units and a big increase in unit supply, it went down and it pushed the overall average down.

Revenue per available room declined 10.8%, but room revenues, again, were down less than 1% compared to the previous year. The size of the industry, in Canada, did not see a great change from 2013.

And if we just compare the average daily rate between corporate housing in the US and Canada, extended stay hotels and all hotels in the US. Corporate housing in the US up 3.9. Canada, as I mentioned, was down 5.9. Bit of an anomaly, that number.

Extended stay hotels up in US 4.8, and all hotels up in US 3.9%. So you can see on the US side that corporate housing is trending up in the same way as extended stay hotels and all hotels, and indeed, that was the case last year. In fact, corporate housing and extended stay hotels got a significant premium in ADR increase compared to the overall hotel industry.

Key Take-Aways

Us average length of stay was down from 88 to 84 nights, which is not statistically different. It’s ranged from about 80 to 88 over the last several years, and just as a comparison, that’s probably somewhere six or seven times what the average length of stay would be in a US extended stay hotel. Canadian length of stay has actually been trending up over the last four years and is now up to 77 nights.

There was a big drop in US housekeeping charges in 2013. This followed a big increase in housekeeping charges in 2012, and we tended to think that because housekeeping is paid by the guest and it’s generally contracted out by the corporate housing provider, is they were probably last year making some profit on contracting out the housekeeping charges, which can affect an increase in rent, and we think that they have to give some of that back this year because a guest is going to look at the total lodging cost, and if you compare it to a hotel, very, very, few hotels will make additional charges for housekeeping.

The oil and gas sector becomes the largest demand generator in Canada in terms of Canadian providers cited that as the number one industry generating business for corporate housing in Canada. This is significant because the oil and gas sector is highly volatile, and if you look at some of the hotel, extended stay hotel markets in the United States, which are generally in more rural areas, that rely heavily on oil and gas, some of them have suffered major collections from very lofty levels of occupancy and average rate over the last twelve months. And as we’re going to see, Calgary, which I believe is one of the main areas of oil and gas exploration in Canada, has corrected this year after being a really high flying area the prior year.

Oil and gas in the US has not featured that highly in terms of the reason for staying in corporate apartments. I would imagine that’s because obviously Houston it’s going to be a factor, and probably New Orleans, but most of the markets that would get that type of business in the US are too small to be included in here, but I would imagine that it is also generating significant long term demand that could go into corporate housing if they were in those markets. And they probably are in some way, but they’re not ones that we track.