The extended stay portion of the lodging business continues to see strong demand. But are extended stay brands doing enough to keep up with travelers' evolving tastes and needs? And what about Airbnb?
Extended stay hotels are a particularly bright spot in an otherwise steady hotel industry, especially in the U.S.
These properties, often distinguished by having a kitchenette in each room and taking reservations, instead of requiring a lease, saw room night demand go up 5.4 percent in 2016 compared to 2015, according to a U.S. Extended Stay Lodging Market 2017 report from The Highland Group.
That same report found occupancy for extended stay hotels remains steady at just over 75 percent. To date, there are about 40,000 extended stay properties in the U.S. alone and that number will continue to grow: rooms under construction for this category are up 16 percent compared to 2015, a record high.
“Demand is at a record high,” said Mark Skinner, partner at The Highland Group. “More people are staying at extended stay hotels in the U.S. today than there were as ever before but what’s also true of the overall hotel industry is that these extended stay hotels are seeing record revenues. Just to put a number it’s probably $11 billion in 2016, not including corporate apartments which would be $3 billion. For 2015, room revenue for extended stay hotels was close to $10 billion.”
The ways in which customers are using extended stay hotels are also expanding. What was traditionally thought of as something specifically geared toward business travelers working on long projects or perhaps relocating has now become a lodging option for people staying four days or less.
“Extended stay is defined by five days by the industry, and I have looked hard to find a week with only five days in it,” said Jack DeBoer, the founder of Residence Inn, Summerfield Suites, and Candlewood Suites, and now CEO of WaterWalk Hotel Apartments. “I think they’ve [the industry] has abominated it [the extended stay category of lodging] from what it was originally intended to be.”
Mark Mahoney, executive vice president of sales for Extended Stay America, said he’s also seen the length of stay for extended stay hotel guests become shorter and shorter as well. “The overall volume in the number of stays we experience from relocations and extended stay has been increasing, but the actual length of stay is decreasing. I think that evolution has been a result of visibility and accessibility of the segment.”
It’s clear there’s certainly demand among guests for these types of properties, whether for shorter or longer stays, business or leisure, and hotel owners and developers are responding accordingly. In some cases, they’re experimenting with new room models and features. In others, they’re extending their scope beyond their usual suburban locales.
But will this be enough to position this product against the increasing popularity of players like HomeAway, VRBO, and Airbnb? Whether extended stay can take share away from traditional vacation rentals or platforms like Airbnb that are flexible enough to offer both short-term and longer-term rentals remains to be seen.
Here’s a look at what a few extended stay brands are doing to position themselves for the next generation of travelers.
Marriott’s Communal Approach to Extended Stay
Earlier this year, at the Americas Lodging Investment Summit, Marriott International unveiled plans to debut a new room prototype for its newly acquired Element extended stay hotel brand. The new room layout, which will be in an unspecified number of Element properties going forward, involves four guest rooms that surround a shared communal space that includes a kitchen, dining area, and living room area. In short, it’s an updated take on dorm living, or a reinterpretation of co-living concepts that have been emerging in spaces like WeLive and others.
“We’re seeing the trend of much more of a sense of community that people are looking for when they travel,” said Toni Stoeckl, VP of lifestyle brands for Marriott International. “They like being with like-minded people and traveling with them or alongside them. The sense of community is much more alive now than it ever has been in the travel arena, and it’s particularly elevated in extended stay because you are spending a lot more time in that hotel than you would in other hotels.”
Stoeckl said the idea for the new communal room layout is ideal for groups traveling together, such a group of girlfriends or a group of consultants. “You want a private room, but you also want space that the group can share together,” he explained.
Catering to group travel is something alternative accommodations players like Airbnb, HomeAway, and VRBO have been doing for some years, but leveraging group-friendly spaces like the communal rooms can give extended stay properties a bit more of a competitive edge.
“That concept has been around for a long time,” said Skinner, “but by and large it’s been absent from extended stay hotels. Clearly there’s a demand for it and there would be certain types of travelers who would like that in an extended stay environment. I’m thinking, especially, of youth sports or teams that need multiple occupancy per room and want to have a kitchen with the ability to store fairly significant quantities of food and drinks. It’s also great for families and other types of groups.”
The new room layout also gives hotel owners some flexibility in how they use or sell those rooms, as well. “If it’s not being sold as a bundle, you can book the individual room and have access to this semi-private space to get to know new people,” Stoeckl said. “And if you don’t, you just don’t use it. It’s creating a sense of community and lets individual travelers also be alone together.”
DeBoer, however, is very skeptical that these types of room formats “will have any impact on the industry at all.”
“I’m not holding my breath that Airbnb or dorm-like connections will have any impact on the industry at all,” he said. “They are great for writing articles. I think they are cute ideas. They don’t have anything to do with the basic business. You have to deliver cleanliness and property price and then monkey around with owner ego trips.”
WaterWalk Apartments’ Straightforward Approach to Co-Living
As much as DeBoer himself bemoans newfangled approaches to extended stay like Marriott’s new communal rooms at Element, he hasn’t stopped trying to reinvent or adapt the space himself, however. His WaterWalk Hotel Apartments in Wichita, Kansas, for example, serve as a particularly interesting example of a mixed-use extended stay property that’s more in line with co-living than DeBoer would probably ever admit, albeit minus the Millennial-friendly coworking spaces or artisanal coffee service.
WaterWalk first opened in 2014 and it consists of an equal number of apartment units and an equal number of extended stay hotel units, all in the same complex.
DeBoer is probably the last person to choose to describe WaterWalk as a “co-living” concept but in many ways it serves as a model for some of the newer co-living spaces we’ve seen pop up as of late: places where both transient residents and more permanent residents co-exist together and enjoy shared programming and amenities. Whether you’re an apartment resident or an extended stay guest, and no matter how many days your length of stay, everything (meaning amenities, utilities, etc.) is “all-inclusive” and there’s certainly a sort of community feel to the whole complex.
DeBoer’s motivation for launching WaterWalk, which will eventually expand to a total of 12 locations throughout the U.S. was purely from a business perspective, however.
“It’s a very profitable business model,” he said. “The advantage is that you only have 75 apartments and 75 extended stay units. Markets will absorb smaller numbers so if you’re going to build a 400-unit apartment project, you should pay a lot of attention to the market.”
“What WaterWalk has done is come in and bridged that gap between a 3-night minimum and an extended stay hotel which will have no minimum stay,” said Skinner. “There was an unfilled gap there if you like. The average length of stay in a furnished corporate apartment is 90 days. For extended stay is three to four days now. Something in between is being met by WaterWalk and by Airbnb coming into the market, and they’ve positioned the product to be more residential than it was before.”
Unlike some of the newer WeLives, Commons, or Commonspaces and other co-living communities of the world, however, DeBoer is content to focus on cities like Wichita, Indianapolis, Tulsa, San Antonio, and Louisville instead.
“I don’t build in big cities,” he said. “That’s where Airbnb really works. I mean, New York, Los Angeles and all these big cities — Airbnb works there because there’s no alternative to it. The zoning for residential multi-family zoning has a lot of restrictions like 30-day minimums. The reason corporate lodging like WaterWalk works in smaller cities is because there’s no alternative to it. But just doing corporate housing by itself won’t guarantee you make any money. That’s why we’ve put all three together so it’s a different animal.”
He said he and his team are currently “toying” with the idea of bringing the WaterWalk extended stay concept to larger cities but that it’s still “on the back burner.”
Mahoney said that having an urban presence is becoming more and more in demand in the extended stay space as well. “We are seeing younger travelers really appreciating that and looking more for that — to being in a city center location. It comes down to things like approximate location to public transportation, things they can walk to, etc. We at Extended Stay America don’t have a lot of presence in urban markets but that urban shift is continuing to move throughout the industry.”
Airbnb’s Future Plans for This Space
And what of Airbnb? Last year, Airbnb formally introduced its Friendly Buildings Program, which incentivizes owners and developers of multi-family housing complexes to allow some of their units to be listed on Airbnb, whether they do it themselves (ostensibly selecting certain units solely for Airbnb use) or if they allow their renters to do so on a part-time basis.
It’s an interesting program that both extends and olive branch to landlords while also ensuring Airbnb has a steady business in multi-family housing complexes that well, might start to represent their own hybrids of co-living hotels in some way.
Kevin Choquette, founder of Fident Capital, a real estate development financier, said he thinks Airbnb was prompted to debut its Friendly Buildings Program because “There was so much blowback from landlords who were frustrated by fact that tenants were subleasing leasehold interests. They recognized potential for damage to the brand and the opportunity for market expansion.” He added, “Let’s see what they can do to extend the olive brand and make this a win.”
Choquette said that if Airbnb can work with developers to designate or even design units that are “Airbnb-ready” or “Airbnb-friendly” and “figure out what kind of economics, control, and transparency owners would need to open up more rooms to the Airbnb platform” this could be a sort of win-win situation for both parties involved.
Extended Stay America’s Mahoney, for one, also thinks the Friendly Buildings Program could be successful. “We actually tried to do something similar two years ago,” he added.
“I was not aware Airbnb had done this but it doesn’t surprise me,” Skinner said. “There’s been a big increase in multi-family housing construction and there are a number of markets around the country which are entering into an oversupply area. When that happens, the apartment/community owner will look for additional sources of revenue outside of their traditional renter.”
And beyond the Friendly Buildings Program, Airbnb is also dabbling in longer-term sublets which also make it a tempting alternative for people who might otherwise be shopping for an extended stay accommodation.
Extended Stay Is Already Evolving and Will Continue to Do So
Whatever does eventually happen in this space, it’s clear that many extended stay operators are paying close attention to Airbnb and the like, and they’re transforming the experiences they can offer in the process.
That much is clear at places like ROOST Apartment Hotel, which has two locations in Philadelphia, which emphasizes a strong sense of community for its guests, many of whom are relocating or staying for long work projects.
“We asked ourselves, ‘What can we do to mitigate that sense of isolation and through our facilities and our team, establish this sense of place?,'” ROOST Co-Founder Randall Cook said. “We want the residence lounge to be a place where guests can gather regularly and we want them to be able to interact with the team to feel connected to the city at large.” Additionally, ROOST has an app for guests, as well as programming related to coffee and music.
And like Element, Extended Stay America is also investing in new models that emphasize more communal living spaces for its guests.
As this sector of lodging continues to grow and, likewise, so does the popularity and demand for homesharing on platforms like Airbnb and HomeAway, we can expect to see extended stay becoming more residential and more communal, too.
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Photo credit: A rendering of one of the communal rooms being piloted at Marriott's Element extended stay hotel brand. Marriott and other extended stay hotel operators are trying to add more communal, co-living-like features to their properties. Marriott International