HM Exclusive: Behind Hilton's expansion into economy, lower-midscale segments

Hilton's new and as-yet unnamed extended-stay product is expanding the company's reach into the lower-midscale space after it targeted the economy space with its conversion-focused Spark brand

“We tend to look at the opportunities relative to the positioning within the chainscale,” Matt Schuyler, Hilton's chief brand officer, told Hotel Management of the company’s expansion downscale. “We think of it in terms of customer needs.” The newest brand, currently operating under the working title Project H3 while Hilton finalizes the trademark process, is meant to cater to people seeking apartment-style accommodations for 20 nights or more, such as first responders to natural disasters, those staying near military bases or even nomadic workers who stay at a customer site for a month or more—a workforce Hilton calculates to be worth $300 billion. 

Extending Downscale

Hilton has had its eye on the economy and lower-midscale spaces for years now, Schuyler said, especially as the segments began “burgeoning” over the past three or four years. As the worst impacts of the pandemic faded, new consumer needs have emerged, he explained, with nomadic work becoming increasingly mainstream. “The notion of ‘take your work with you’ and ‘work is a thing you do, not a place you go’ is definitely a post-pandemic phenomena,” he said. At the same time, travelers increasingly want the best possible value for every dollar they spend on their travels. “The price point is their value equation, and so they're willing to stay for whatever length [of time] makes sense for them if the price is right.” Finally, the Hilton team looked at the marketplace of existing economy and lower-midscale brands and found “a mishmash of “very inconsistent” products, Schuyler said. “And so we saw this as an opportunity for Hilton to make its mark in the economy space that is incredibly inconsistent right now.

While Spark will exclusively focus on conversions and cater to the transient market, Project H3 will be a new-build brand of studio apartment-style rooms that Schuyler predicts will sell for 30, 60 or 90 nights at a time. 

Designing for the Long Term

Since Hilton expects each property under the Project H3 banner to be a new build, the company has been “very deliberate” in designing what the hotels will look like, Schuyler said. In developing the brand’s look, the team studied similar properties, staying in comp-set hotels and determining best practices and also figuring out what would not work for the new brand. “And then, of course, we look at our own portfolio to make sure that we're not … cutting into the ‘swim lane' of our other extended-stay products,” Schuyler continued.  

Project H3, in particular, is different from Hilton’s Homewood Suites and Home2 Suites extended-stay brands in several ways, Schuyler explained. For example, its smaller footprint demands a “more efficient” use of the space. “Common areas are smaller, but designed to be enduring in that they'll stand the test of time and give you everything you need and nothing you don't.” The smaller design also means a property can operate with a smaller workforce. “This product is meant to be very self-service and very efficient—from a labor perspective—for owners who would want to invest their capital.”

The exterior has wooden tones for a “farmhouse chic” aesthetic. “The palate is slightly industrial but warm and light. There's daylight making its way into all the common areas, which is unique in this space.” Outdoor features include a patio with a grill area and communal fire pits. 

Inside, the Hilton team dubbed the lobby “The Hive” as they expect the space to feel like a beehive, “where you're bouncing in and out of this common space as you live your day.” The fitness room has natural daylight—a notable feature, Schuyler said, as many of these spaces are treated as “an afterthought tucked away in a closet-type space.” The laundry room, meanwhile, has tables so guests can eat, work or socialize while they clean their clothes.  

The guestrooms, meanwhile, have an adaptable layout. Guests can move the furniture around (to a certain extent) in order to customize the room to their own needs. The rooms also have “ample” storage space with open closets. The in-room kitchens have a full-sized refrigerator, dishwasher and microwave as well as a two-burner stove. 

Development and Targets

Hilton, Schuyler said, sees “incredible opportunity to grow this brand fast,” and expects it to reach hundreds—“more than 1,000”—of hotels soon. “We see so many domestic locations that feature either one or more of our competitor brands—and also hundreds that have no existing product—where we think there needs to be a product.” As neighborhoods develop and roadways expand and businesses grow, hotels need to follow to meet demand, he added.  

The company has “a cadre of thousands of current owners” who are interested in new products, Schuyler said, but Hilton views H3 not only as a customer-acquisition strategy but an owner-partnership-acquisition strategy. “We think there will be numbers of owners [who] don't currently have a product with Hilton that are interested in an extended-stay type of product,” he said, noting that some have already expressed interest. 

“Along the brand-build journey, we do talk to owners. This brand, in particular, was built in partnership with a group of ‘founding owners’ who know a lot about this space and worked hand in hand with us.” As of the launch, Hilton was in 100 active development conversations with potential owners. 

In terms of building costs, Schuyler expects Project H3 to be squarely in the middle of normal economy and lower-midscale development projects, with average daily rates of around $95 to $105 once a property opens. Longer bookings, he added, will cost less while shorter ones will drive the nightly price up.