Extended-Stay Hotel Boom Gets a Reality Check

America’s hotel companies have invested heavily in extended stays. Last year, Marriott, Hilton, Hyatt, and Wyndham all began rolling out brands to capture what they see as long-term demand.

They are wagering on a few trends: Uncle Sam’s infrastructure splurge, the stubborn persistence of “bleisure” travel, and a housing crunch.

But the impact will not be felt nationally for at least 1.5 to 2 years, given the glacial pace of hotel development.

In the short term, interest in extended-stay hotels is moderating. As with any gold rush, the initial fervor gives way to a more measured reality. The opportunity is still significant, but the go-go days of the pandemic and its aftermath are over.

Today demand exceeds supply growth by about 1.5 to 1, softening from a year ago — when demand was nearly three to one in most U.S. markets.

That data is from The Highland Group, a consultancy with the best numbers on extended-stay hotels.

Skift checked in with Highland Group’s Mark Skinner for a sector update.

Economy Extended Stay Hotels

In the economy segment, a curious phenomenon is unfolding. Earlier this year, the sector witnessed a surge in supply — up about 12% year-on-year — as older, more upmarket properties were rebranded or converted because of one-off portfolio sales.

However, Skinner expects this influx of supply to ebb over the rest of this year.

The economy segment has not been immune to inflationary pressures. Rising insurance costs — particularly property and liability insurance — damaged hotel bottom lines.

Yet, Skinner remains sanguine, predicting a return to positive revenue per available room as inflation eases.

“When you have lots of changes of ownership, you have changes in reservation systems and marketing,” Skinner said. “That causes temporary drops in occupancy.”

Mid-Price Extended-Stay Hotels

The mid-price segment, typically commanding rates of around $90 per night, faced different dynamics.

Supply growth has been minimal. Demand has shown a modest but steady uptick of about 3% per month recently.

Upscale Extended-Stay Hotels

At the upper end of the market, upscale extended-stay hotels — those charging $135 or more per night — are experiencing a golden age. Brands in this segment, like Homewood Suites by Hilton and Residence Inn by Marriott, have seen handsome profits on average.

The upscale segment generated more revenue than any other, producing $932 million in May alone — a rise of 3.7% year-over-year.

That’s because upscale extended-stay hotels have seen less than 0.5% supply growth over the last year, yet demand has risen by 2.6% on average.

There are hardly any true luxury extended-stay branded hotels. That’s been a missed opportunity. In the first half of this year, luxury was one of the only segments to boost average revenue per available room significantly.

Rate Pressures Follow Broader Hotel Sector

Skinner notes that more extended-stay guests are found in traditional hotels than in purpose-built extended-stay properties. So, in absolute room nights and revenue, more consumers stay for extended durations in hotels not designed or marketed as “extended stay.”

Yet different customers have different rate tolerances. When, say, traditional mid-priced hotels offer discounted rates, competitive pressure is then put on mid-priced hotels in the extended-stay category to cut their prices, too.

Accommodations Sector Stock Index Performance Year-to-Date

What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.

The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.

Read the full methodology behind the Skift Travel 200.