Hotel Brands Looking to Join the High Performance of Extended-Stay Lodging

The extended stay hotel model has shown a consistently high performance, leading to the creation of more such brands, according to a recent hospitality report from CoStar.

“Even when room demand for regular hotel rooms evaporated in early 2020, extended-stay hotels showed that there is always demand from customers such as first responders, traveling nurses, construction crews, and people relocating for family or professional reasons,” according to the report.

The annualized occupancy for all extended-stay brands never fell below 59% during that time, STR, a CoStar Group company, said, whereas the annualized U.S. occupancy declined to 41% during the pandemic.

Among the examples, in May, Hilton launched an extended-stay hotel brand, while Marriott International executives “teased a similar new brand in the coming weeks,” and Airbnb announced it is working to make long stays easier to book, CoStar reported.

Another positive sign for the industry is that a greater number of Americans traveled abroad at the start of 2023 than at the beginning of 2019.

Consumers planning vacations are facing higher airfares and higher hotel room rates, however.

“Taken together, this increased cost of travel could negatively influence travel behavior and how the hospitality industry responds,” CoStar said.Anna Scozzafava, SVP & General Manager, Extended Stay, Choice Hotels International, tells Globest.com that Choice Hotels is “always looking at what’s new and next, and thinking about where it makes sense for us to compete. While others are just now entering the extended stay segment, we went all-in early on and have a track record of success.”

Choice has four extended-stay brands, including Everhome Suites, WoodSpring Suites, Mainstay Suites, and Suburban Studios. In Q1 2023, Choice Hotels’ extended stay domestic pipeline expanded to 475, a 28% increase YoY. Over the next five years, Choice expects its number of extended stay units to increase annually at a rate of more than 15%.

“Between the high demand, continued interest from both traditional hoteliers and larger commercial real estate developers, and the trends we’re seeing, we anticipate that the segment will continue to grow,” Scozzafava said.

She said that trends include the re-shoring of American manufacturing where it is expected that business travel will increase due to more of the US supply chain moving domestically and the nationwide investment from the infrastructure bill.

“Increasingly, rising wages mean that guests are choosing amenities associated with specific hotel brands when they choose where to stay.”

Scozzafava said that with remote work, the business traveler is back, particularly in skilled professional segments like travel nursing and IT, as well as white-collar workers who are traveling to attend conferences and events, and needs are high.

“Workers are on the road and looking for convenience and flexible accommodations when they travel,” she said.

Scozzafava said the return and risk profile of extended stay is vastly different than traditional hotels or multifamily, however, “we’ve seen a shift in how financing is secured for extended stay where proven brands with a demonstrated track record of high performance can make a difference.

“Historically, lenders have approached hospitality financing as one big bucket. There is an opportunity to educate the industry and demonstrate why this asset class that should be evaluated differently.”

Peggy Olin, CEO at OneWorld Properties, tells GlobeSt.com that Miami and major global cities across the globe have experienced an uptick of travelers seeking short-term rental programs.

“The impact of this phenomenon on local economies, housing markets, and travel patterns is a compelling successful story,” she said.

In downtown Miami, seven short-term rental condo developments have entered the market in the past 12 to 24 months to capitalize on the popularity of home-sharing services and offer both investors and short-term guests competitive pricing, flexibility, and amenities, according to Olin.

Yariv Ben-Ari, the Co-Chair of the Real Estate Hospitality Group with New York law firm Herrick, Feinstein, tells GlobeSt.com that it’s “no surprise” to see brands such as Marriott and Hilton, as well as Airbnb, increasing their inventory of extended stay brands for a few converging reasons.

“Perhaps the most significant is the current economic realities – including a high-interest rate environment and significantly-reduced lending options – with these less costly assets allowing for reduced development costs for sponsors, even amid an economic slowdown.

“Additionally, the continuation of the “work from home” and “home away from home” trends make these properties more attractive to a broader swath of visitors. Reduced fees and development costs naturally lead to higher profitability for these developers and longer stays with more, albeit reduced, fees for the brands.”

Afshin Kateb, CFO and Head of Hospitality Investments at Palladius Capital Management, tells GlobeSt.com that through May, leisure travel continued to remain strong and partially supported by B-Leisure demand.

“This demand compression has resulted in airfares reaching 111% of 2019 prices which combined with higher room rates, will likely adversely impact travel behavior,” Kateb said.

“Early June data in some key markets indicate a rate pushback which has resulted in hotels dropping rates in order to maintain occupancy. Such a drop will naturally yield lower RevPAR, and when coupled with rising costs of labor and insurance, the profitability will be adversely impacted resulting in yet another headache for borrowers and lenders.”