While the industry at large struggled through the COVID-19 downturn, the extended-stay segment has shown its strength throughout the past year, achieving the highest performance results of any segment during the pandemic. The segment is expected to continue to remain attractive to guests as the industry returns to 2019 travel levels. During a virtual roundtable sponsored by Red Roof, several industry insiders discussed why the extended-stay segment is going strong, what benefits the business model offers and what opportunities await these hotels going forward.
Facts and Figures
Mark Skinner, partner at the Highland Group, started the panel with some statistics about how the sector is doing. All hotels, according to data from STR through April, saw revenue per available room decline 6 percent year to date. “But extended-stay collectively is actually up 1.6 percent for the year to date,” he said. Compared to the same time frame in 2020, midprice extended-stay hotels have reported 5.5 percent RevPAR growth from February through April. “And if you compare that to all mid-price hotels, they're running about 16 percent [up from last year],” he added, noting that this improvement can be credited to a bigger overall decline. Economy extended-stay RevPAR is up about 12 points this year compared to 20 points for overall economy hotels. “The upscale segment is a bit of an outlier because it fell the furthest of all extended-stay segments, but it didn't fall as far as all upscale hotels,” he said. “So while upscale extended-stay [hotels] are still showing negative RevPAR year to date of about 3.5 percent, all upscale hotels are 14 percent down year to date.”
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Following STR’s model of comparing 2021’s numbers to 2019 rather than 2020, Skinner said extended-stay hotels in April of this year were the same as they were in April two years before, with the economy segment reporting 113 percent of its April 2019 RevPAR. Reflecting the industry’s bottom-up recovery model, midprice extended-stay hotels are at 90 percent of 2019’s revenue and upscale extended-stay is at 83 percent. “Extended-stay hotels have recovered 90 percent of the RevPAR compared to April 2019,” Skinner said, which compares to about 70 percent for all hotels. Even better, extended-stay recovery is twice as fast as the segment saw after the previous two downturns.
Gaining Market Share
Miraj S. Patel, president of Wayside Investment Group, noted how many transient hotel brands had to close for several months during the worst of the downturn. “extended-stay hotel[s were] still open. Lights were on, and that's why they did so well.” Skinner said that according to all available data, no economy extended-stay hotels closed during the downturn. “I'm sure something happened, but it was statistically insignificant, which was [very] different [from] the overall hotel industry.”
Another reason for the segment’s strength could be the shifting labor landscape, with people moving out of their apartments and seeking affordable alternatives, Patel said. Extended-stay hotels have a strong appeal to a certain demographic of guest that wants a real home-away-from-home but does not want to be tied down to a long-term lease. At the same time, the services and amenities provided by an extended-stay hotel can offer a solid value. “Extended-stay brands were there for our consumers during the times when it was the worst for those people,” Patel said.
Gerard Dehner, managing partner at Cornovus Capitol, agreed, noting that between February and July last year 15.9 million people changed addresses as people changed or lost jobs. During those months, relocations out of major urban hubs rose 23 percent. “It's the perfect storm for extended-stay when people are moving to other cities,” he said, noting that extended-stay hotels kept reaching out to guests and reminding them of what was available. While the big cities faced stricter lockdowns, extended-stay hotels in these markets still did “halfway decent,” he added. “I don't think they did as well as the smaller metropolitan areas, but ... that consistency and communication and working with folks definitely provided that bridge.”
Challenges and Opportunities
Michael Sharp, VP of design, construction & procurement at Red Roof, said that as vaccination numbers increase and travel resumes, extended-stay hotels will face greater competition. “You have to be flexible in this category, and you really need to listen to your guests,” he said. Guests want to “travel on their own terms,” he added, and the extended-stay model makes that easier with in-room kitchens and other homelike amenities. With more hotels—and more extended-stay brands—coming online, hoteliers will have to pay close attention to what guests want in order to maintain market share, whether it’s next-gen technology or service levels.
Matthew Hostetler, chief development officer at Red Roof, noted that some extended-stay traditions like reduced cleaning schedules have become standard at transient hotels as the pandemic limited contact between guests and staff. These traditions may become increasingly commonplace across hospitality as an industry, he said.
Beyond that, he said, technology may play a stronger role in the economy extended-stay sector. “People want to bring their experience from home on the road,” Hostetler said. “They want to be able to ... make those connections within their own hotel space when they're on the road. So the challenges become opportunities for all of us in development and as hoteliers, and I would see not as many challenges as opportunities.”