Extended Stay Hotels - Will They Take The UK By Storm?

As hotel room rates continue to soar in many UK cities, alternative accommodation products are increasing their appeal to corporate buyers as a more cost-effective way to accommodate their mobile staff.

Stephen Broome, assistant director in the hospitality and leisure practice, PricewaterhouseCoopers LLP comments:

'The extended stay market (hotels that accommodate stays of five days or more) is in its infancy in the UK, but the opportunities are good for the future.

'In the US, 20 percent of all hotel stays are estimated to be five nights or longer and extended stay properties account for 240,000 rooms, but in the UK there are currently only 3,400 rooms.

'Having established successful and profitable brands in the US, some hotel players are now considering Europe and the UK in particular. Operators, developers and investors like the extended stay product as they are economically efficient in terms of initial market entry and ongoing operations.'

The benefits of extended stay properties are many. There is no need for common areas, bars, restaurants or kitchens and less need for an impressive foyer and high profile locations. This all leads to dramatic cost savings.

Stephen Broome, PricewaterhouseCoopers LLP adds:
'What we are seeing is development costs (less land, site preparation and fees) of about £80,000 to £85,000 per key for an extended stay property compared with £100,000 to £140,000 per key for a full service hotel.'

Payroll costs are also lower due to less intensive service levels and the longer the stay, the lower the room servicing costs. Operations and maintenance costs are also lower than full service hotels.

Stephen Broome, PricewaterhouseCoopers LLP continues:
'Another significant advantage is that occupancy levels are generally higher because of the greater forward visibility and lower levels of daily turnover making these facilities very attractive to investors.

'All these benefits lead to superior profitability ratios with operating profit at about 50 percent of revenues compared to a target of around 35 percent to 40 percent for a well performing, full-service hotel.'

The key to extended stay's future prospects - and to its impact on the UK and eventually European hotel industry - rests in the benefits it offers to each element of the hotel development and operation value chain. For each participant, the implications of extended stay include:

• For owners, developers and investors - lower operating and development costs, lower risk and higher returns.

• For corporate buyers - a better and newer product, potentially at a lower cost.

• For consumers - A wider choice of flexible product when seeking somewhere to stay.

• For existing extended stay and serviced apartment operators - Increased high-profile branded competition benefiting from the advantages of branded hotel distribution systems.

• For the full-service hotel sector as a whole - An increase in high quality attractively priced competition.

Stephen Broome, PricewaterhouseCoopers LLP adds:
'The hotel industry is watching extended stay properties very closely and if the early entrants to the UK and European market perform well, others will undoubtedly follow.'

Related Document - UK Extended Stay Hotels



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