Forget spas and cocktail bars. Indoor kitchens are the must-have perk at U.S. hotels now. Marriott, Hilton, Hyatt, and Wyndham are smart to bet that the long-stay trend will be here for the long term.
Marriott, Hilton, and Hyatt have previewed new extended-stay hotel brands in the past month. The U.S-based hotel groups are wagering that a few factors will power extended-stay hotels for years to come, including U.S. federal infrastructure investment, the resilience of blended travel, and a housing crisis.
Marriott International CEO Anthony Capuano said in an early May earnings call that his company was “a few weeks away from announcing a simple, modern, streamlined new-build, extended-stay product.” The new brand, Marriott’s 32nd, would target guests “looking for longer stays at a mid-scale price point,” he said. In November, Marriott International separately said it would debut an extended stay brand in the U.S. and Canada called Apartments by Marriott Bonvoy in a premium-priced segment.
Hilton Worldwide CEO Chris Nassetta teased the previous week that the operator would debut an extended-stay brand within a few months. “It’s like an apartment efficiency meets hotel,” Nassetta said. The premium-economy brand would be all new construction rather than conversions, he said.
Wyndham Hotels & Resorts late last year rolled out its 24th brand, Echo Suites Extended Stay by Wyndham. The world’s largest hotel franchisor has already signed up developers to build 120 of them, and Echo Suites is the fastest-growing brand in its U.S. development pipeline.
Airbnb continues to see roughly 20 to 24 percent of its bookings for lodging for stays of 28 days or more, up from 14 percent in 2019. On Wednesday, the online travel agency added a “months” tab to look for hosts accommodating longer-term guests.
Extended Stay America, the segment’s best-known brand in the U.S., was bought for $6 billion by Blackstone and Starwood Capital in 2021. Those investors bought 111 WoodSpring Suites hotels for $1.5 billion last year, and Extended Stay America is rebranding those properties now as part of its new multi-brand growth strategy, which focuses on economy and midscale segments.
And while Choice Hotels hasn’t launched a new brand, its WoodSpring Suites brand accounted for approximately 94 percent of the economy extended stay rooms under construction at the end of 2022. Choice Hotels was last year able to boost domestic extended stay franchise agreements in 2022 by a record 77 percent, year-over-year.
So what’s driving the wide interest in extended stay — a category we’re defining as hotels whose rooms have fully equipped kitchens and typically have larger rooms and self-service laundry rooms.
U.S. Extended-Stay Hotel Room Projections Through 2027
|Segment||Rooms in 2022||Percent in 2022||Rooms in 2027||Percent in 2027||Compound Annual Change|
Source: The Highland Group
Demand for extended-stay lodging is outpacing supply by nearly three-to-one in most U.S. markets, said The Highland Group, a consultancy with the best data on the segment.
In recent months, the economy, mid-price, and upscale segments saw demand increasing by double-digit percentages while supply rose by only low single-digit percentages, it said.
“All extended-stay segments reported rate growth in March, but the upscale segment’s double-digit gain was the main driver of the overall 8.5 percent increase,” Highland Group said.
Will the rush of hotel group announcements lead to an over-supply? After all, roughly a third of the construction pipeline for hotels in the U.S. is extended-stay projects, or roughly 30 percent of planned rooms, according to Lodging Econometrics.
But oversupply is unlikely to happen anytime soon because of the multi-year gap to fill.
“The new brands are not likely to have any material impact on national ES supply until 2025 at the earliest,” said Mark Skinner, a partner at the Highland Group.
Long-Term Demand for Long-Stay
U.S. government spending on infrastructure is expected to support long-term demand for extended-stay hotels. The projects are nationwide, and construction managers and workers will be hitting the road.
A housing crisis in the U.S. is another factor. After the 2008 financial crisis, home construction failed to keep pace with demand in many U.S. markets. The problem won’t be resolved anytime soon.
“Recently, apartment rents have been very high, and many people are looking for a new place to hang their head for a minute until they get a new home, and that has been a tailwind for us,” said Extended Stay America CEO Greg Juceam.
It’s not just in hotels where the long-stay demand is appearing. Year-over-year records of nights sold in the fourth quarter showed a 29 percent year-over-year increase in U.S. stays across short-term rentals, estimated vacation rental data provider Key Data.
Supply Side Drivers
Developers and hotel investors also have an increasing interest in extended-stay properties because of what they believe is a better business model than full-service hotels. The properties require less staffing because of less frequent guest changeover and housekeeping needs, which can help add to margins.
“In general, branded extended stay brands, as well as select service midscale brands, tend to have the lowest breakeven occupancy and can thus offer higher operating margins and return on investment,” said Pranavi Agarwal, senior research analyst at Skift Research.
“Though on the top line, extended stay brands will make a lower revenue per available room than luxury or upper upscale brands, on the bottom line, they can offer higher margins since extended stay brands and they tend to be less labor intensive than full-service brands — which are more reliant on low margin offerings such as food and beverage — as well as being less costly to build and generally having a lower percentage of their bookings coming from commission-high online travel agencies,” Agarwal said.
Other analysts agreed.
“Despite challenges to higher-rated corporate travel, we view quality extended-stay hotels with strong brand standards and efficient staffing as generally among the most profitable types of hotels,” wrote research analysts at Truist Gregory Miller and Patrick Scholes in a report on April 25.
“Extended-stay hotels are also very popular for guests given large rooms and amenities that sometimes include food and beverage. Efficient labor costs, utilities, and relatively lower insurance costs may be additive for lender approval,” Miller and Scholes wrote.
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Photo credit: A branded residential concept illustrating indoor and outdoor living from 2018. Source: Marriott International.