The extended-stay segment of the hotel industry has evolved from a niche lodging concept into one of the most resilient and fastest-growing categories in hospitality.
The modern extended-stay hotel concept originated in the United States during the 1970s, largely credited to hotel developer Jack DeBoer. Facing high vacancy rates in apartment properties, DeBoer repurposed units into short-term, furnished accommodations designed for longer stays. This experiment led to the creation of what would later become the Residence Inn brand, formally launched in 1981 and purchased by Marriott in 1987.
What distinguished this new concept was its focus on guests staying five nights or more, often business travelers, relocating families or individuals needing temporary housing. When Marriott purchased the Residence Inn brand, the average length of stay was actually almost seven nights.
Over time, most of the upper upscale brands, Residence Inn, Homewood Suites, Staybridge Suites, Hyatt House have morphed into more transient brands with average length of stays less than three nights and at a price point sometimes exceeding $4,500 to 5,000 per month, and in many cases being twice as expensive vs renting an apartment.
As these brands elevated into a higher price point and shorter length of stay, it created a space for a more economical extended stay product.
With the segment maturing by the mid 1990s, it became more clearly segmented by price and service level. Developers and operators categorized properties into economy, midscale, and upscale tiers, each targeting distinct customer groups. The 1990s marked a period of explosive growth for the segment. Major hotel companies recognized that extended stay properties offered several advantages over traditional hotels:
- Higher occupancy stability
- Lower labor costs
- Reduced housekeeping expenses
- More predictable revenue streams
- Greater guest loyalty
- High operating profit margins
One of the most notable new brands to emerge was Extended Stay America, founded in 1995. It rapidly expanded by targeting midscale and economy travelers, opening its first properties that same year and growing aggressively through acquisitions and new development.
That was followed by WoodSpring Suites (originally Value Place), launched in 2003 by Jack DeBoer, targeted budget-conscious guests with simplified services and longer minimum stays. Ultimately, this brand was purchased by Choice Hotels, enhancing its overall position within the extended-stay segment.
The events following the Sept. 11, 2001 terrorist attacks and later the 2008 financial crisis, demonstrated the resilience of extended stay hotels. Because guests typically stayed longer, occupancy declines were often less severe than those experienced by traditional transient hotels.
The 2008 economic downturn significantly reshaped hospitality, but extended stay properties generally outperformed many traditional hotel sectors. Their lower operating costs and reliance on long-term guests provided greater financial stability.
Demand drivers during the recession included:
- Foreclosure-related housing displacement
- Temporary workforce relocation
- Budget-conscious corporate travel
- Infrastructure and energy projects
The COVID-19 pandemic highlighted the unique advantages of the extended-stay model. While traditional hotels suffered from declining travel demand, extended-stay properties performed relatively well due to their focus on long-term guests, including essential workers and individuals needing temporary housing.
Following the pandemic, the segment experienced renewed growth and investment. Developers and hotel companies recognized extended-stay hotels as lower-risk assets with stable cash flows, driven by longer lengths of stay and reduced operating costs.
Recent years have seen a surge in new brand launches, particularly in the economy and midscale categories. Major hotel companies, including Marriott (StudioRes), Hilton (LivSmart), Hyatt (Hyatt Studios), Wyndham (Echo) and independents StayApt Suites and LivAway Suites, have introduced or expanded extended-stay offerings to capture growing demand from more cost-conscious travelers , as opposed to the more traditional upper upscale extended stay hotels.
From its origins in repurposed apartments in the 1970s to its current status as a major lodging category, the extended-stay segment has undergone significant transformation. Its success lies in its ability to adapt to changing consumer needs, offering a flexible and cost-effective alternative to traditional hotels.
Today, while there are a wide choice of brands to choose from, there's one important factor for any of the brands. Developers/operators must maintain discipline when operating any economy or mid-priced extended stay hotel in sticking with the model which has made the segment so financially attractive and sustainable. The key component of the model is to stay focused on attracting demand for longer stays and not get drawn in to becoming a more transient hotel with just one to three nights stays. While revenues can be higher with more transient demand, operating profit margins decline dramatically leading to less profit as opposed to maintaining long term demand, lower operating costs and higher profits.
About the Author
Paul Novak a partner at Whitman Peterson and is one of the premier development and acquisition executives within the hotel industry. He has acquired or developed over $4 billion in hotel assets over the past 40 years, through his leadership roles at major hotel companies.
This article was originally published in the June/July edition of Hotel Management magazine. Subscribe here.