Extended-stay hotels across the country held up better than full-service hotels during the downturn, and new development is positioning the sector for a strong 2021 and beyond.
According to a new study from the Highland Group, economy extended-stay hotels started reporting average daily rate gains late in 2020, and those gains have continued into 2021. Midprice extended-stay ADR losses are now around 3 percent compared to 15 percent as recently as February 2021. While the segment is still coping with ADR losses greater than the overall hotel industry, upscale extended-stay hotels are gaining ground with recent monthly declines around 16 percent compared to 25 percent four months ago.
All three extended-stay segments have endured far lower losses in revenue per available room when compared to all hotels of the same class. Economy extended-stay hotel RevPAR has already risen above its Q1 2019 level. The segment’s recovery to its most recent nominal RevPAR high in only two years is about half the time it took following the previous two downturns. In Q1 2021 overall extended-stay hotel RevPAR was 73 percent of its 2019 Q1 level. The corresponding measure of recovery for the total hotel industry was 58 percent, according to STR.
All extended-stay hotel segments reported higher demand in Q1 2021 compared to the same period in 2020. The pandemic affected upscale extended-stay hotels more than lower-priced segments and upscale was the only category of extended-stay hotels to report demand growth lower than its rate of supply increase in Q1 2021. Overall extended-stay hotel demand rose 8.6 percent as the pandemic reduced total U.S. hotel demand nearly 12 percent, according to STR.
Development
Most of the approximately 25,000 extended-stay hotel rooms that closed temporarily during the pandemic have now reopened, lifting the rate of supply growth to a level not seen since the recovery from the global financial crisis when including new construction, according to the Highland Group. However, the rate of extended-stay hotel supply increase is poised to decline later in 2021 as most of the closed hotels reopened before the end of 2020.
Despite the high supply growth, both economy and midprice extended-stay hotels reported occupancy and revenue increases in Q1 2021 compared to Q1 2020 as the bottom-up recovery is driving strong gains in demand. It is also driving ADR growth far quicker than during previous recoveries.
There were 547,093 extended-stay hotel rooms open at the end of first quarter 2021. Roomnights available increased 8.9 percent over the last year. The number of economy extended-stay hotel rooms temporarily closed during the pandemic was negligible. Therefore, the segment’s 4.3 percent gain in room supply correlates highly with the true rate of supply growth. The mid-price and upscale segments' respective 11.7 percent and 8.2 percent increases are inflated because they include reopening several thousand rooms closed temporarily during the pandemic. Extended-stay hotels endured far fewer hotel closures compared to the overall hotel industry.