Wyndham's fast-growing extended-stay category intensifies the competitive dynamics of Choice Hotel's take-over bid as both companies vie for the increased business from construction workers and related trades.
The Biden administration’s infrastructure spending blitz has put more construction laborers on the road for work this year, fueling a race by extended-stay hotel operators to win their business.
Data from Navan, a corporate travel management company, shows construction industry extended-stay lodging bookings are up 120% in the two years through the end of November. More broadly, the industry has outspent all other sectors on work travel overall by 9.2% in the 12 months through August as more workers temporarily relocate to live around project sites.
“If you look at the infrastructure bill and reshoring of American jobs, there’s a huge amount of new business coming in – 50 million to 100 million room nights over the next decade that really are going to feed the extended-stay profile,” Scott Oaksmith, chief financial officer of Choice Hotels, said during a recent third-quarter earnings call.
The Infrastructure Investment and Jobs Act passed in 2021 had targeted $1.2 trillion of transportation and infrastructure spending over five years and has been credited in part for helping construction employment weather a homebuilding downturn caused by rising interest rates. Construction employment has risen by 2.2% so far this year, outpacing the 1.55% increase in overall employment.
From the end of 2019 through the end of June, Choice Hotels experienced 73% growth in revenue per available room in the South Atlantic and a 400% increase in the Mountain West, a spokesperson for the chain said, areas that have seen a raft of project announcements under the IIJA.
Expansion of Choice Hotels’ extended-stay brands, which include Everhome Suites and MainStay Suites among others, has involved tracking large-scale infrastructure project announcements in order to cater to construction workers and related trades, said Anna Scozzafava, chief strategy officer and senior vice president for technology at Choice Hotels.
“We can follow the funding, and see where these jobs and investment dollars are going,” said Scozzafava.
This year and 2022 were among the strongest years for demand growth for Choice’s extended-stay brands, she said. “We’re getting construction crews, but also some trades that go along with construction as well. We had a big win … with a steel company in Georgia that needed rooms for six to seven months.”
Choice is not alone in looking to grow the category and in fact faces competition from Wyndham Hotels & Resorts, for which it has launched an unsolicited $7.8 billion takeover bid.
Wyndham has expanded investment in hotel-level marketing and its loyalty program in an effort to boost infrastructure-related bookings and capture a windfall from the IIJA, Wyndham Chief Executive Officer Geoffrey Ballotti said in the company’s third-quarter earnings call.
While less than 10% of hotel rooms are extended-stay units, the category is fast-growing with extended-stay hotels representing 37% of lodging under development, according to Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities.
“Wyndham Hotels is the biggest winner,” Scholes said. “Wyndham was a hotel company starved of new brands, and then about two years ago they started to introduce this Echo brand, which has been strong out of the gate.”
The construction industry has historically seen high rates of itinerant labor, according to Greg Sizemore, vice president of health, safety, environment and workforce development at Associated Builders and Contractors, a trade association based in Washington.
“I worked post-Katrina on the Mississippi Gulf Coast when everyone was installing trailers down there for people to take up temporary housing. But there was nowhere for us to stay. We had men and women sleeping in their cars until the hotels opened back up,” said Sizemore, who traveled as a construction worker for 30 years.
Demand for construction workers remains strong, with the industry’s vacancy rate of 5% as of October being roughly twice the historic job openings rate over the two decades preceding the pandemic, according to Bureau of Labor Statistics data.
That often means the employer foots some or most of the cost of lodging workers in remote areas where local housing options are limited, said Brandon Mabile, strategic development manager at Performance Contractors. The Baton Rouge-based industrial construction company employs about 700 workers on 20 current projects.
“We’ve got crews in some pretty remote areas at the moment,” said Mabile. “In Montana, you’re going to have to pay a little more than in Oklahoma or Texas.”
As project funding pours into less densely populated areas, the cost of housing employees rises and demand for extended-stay properties and other alternatives like recreational vehicle parks spikes as employers seek acceptable lodging at affordable rates, according to Sizemore.
“Options are everything,” he said.
Reporting by Amina Niasse; Editing by Dan Burns and Andrea Ricci
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