Extended-stay leverages strengths for continued staying power

Throughout 2020 and 2021, the extended-stay segment of the hotel industry has proved to be both pandemic and recession-proof. According to a report from the Highland Group, overall extended-stay hotel demand rose 8.6 percent in Q1 of 2021, while overall U.S. hotel demand decreased 11.9 percent. Extended-stay occupancy has been lower in 2021 than any first quarter since 2009, but average extended-stay occupancy is still higher than all other segments. Economy extended-stay hotels continue to fare better than midprice and upscale brands. 

Although extended-stay brands have been the unexpected successes of the pandemic, the future of the segment remains as uncertain as the rest of the industry. Concerns about the delta variant and whether or not a return to pre-2020 travel levels will be sustainable call the segment’s forecasted outlook into question. Many executives, however, are optimistic that extended-stay brands are not just isolated winners of the pandemic but an attractive option heading into the future.

“It’s not unreasonable to think that up and down the chain scales and across market segments, apartment-style hotels are key to the future, not just of extended-stay, but all of hospitality,” said Gary A. DeLapp, president and CEO of stayAPT Suites.

Key Trends

StayAPT Suites officially launched in January 2020, opening its first hotel in Fort Belvoir, Va. Since then, the brand has opened an additional four hotels. It has eight hotels under construction and expects to open more than 25 additional hotels by the end of 2022, with a goal of more than 100 corporate-owned hotels and more than 200 franchised. “Our development pipeline is fast-tracked, following outstanding initial performance by our first hotels, which stabilized quickly from an occupancy and [average daily rate] perspective,” DeLapp said. Matt McElhare, senior director, extended-stay brands at Choice Hotels International, is similarly bullish on the segment. WoodSpring Suites—the largest of Choice’s two economy extended-stay brands—is approaching 300 new-construction openings in 2021. In addition, McElhare said the company signed the largest deal in MainStay Suites history at the end of 2020, with one of its largest WoodSpring owners bringing 15 Hawthorn Suites assets into the midscale extended-stay MainStay brand. McElhare credits this deal for the brand’s 26 percent year-over-year increase in growth. 

McElhare calls Suburban—Choice’s other economy extended-stay brand, which is focused exclusively on conversion rather than new construction—a “sleeping giant.” Due to closures of traditional hotels and the proven tendency toward longer length of stay, conversion should be a notable trend moving forward. Construction and turnaround are quicker. In many cases, converting a traditional hotel can consist of just adding a kitchen module into units. 

“The big theme that we’re seeing, and the one that we’re positioning Suburban for, is the repositioning of traditional hotels into extended-stay hotels,” McElhare said. “There are a lot of traditional hotels that are potentially underperforming, that are sitting in awesome extended-stay markets that would perform a lot better.”

Both McElhare and Matt Hostetler, chief development officer at Red Roof, view the West Coast and other areas that attract relocated employees, individuals in need of affordable housing, and customers blending work and leisure as key markets for growth in the segment. 

“Texas and Florida are very attractive to us right now, but everything west of our home state of Ohio is quickly becoming a major focus,” Hostetler said. “Markets near military installations, long-term projects, universities and hospitals remain great demand generators for HomeTowne Studios.” 

McElhare also believes that technology will be a key driver of upcoming change in the extended-stay segment. To offset the ongoing labor shortage, extended-stay owners are investing in technological solutions to customer demands. 

“We’re seeing a lot of our owners look at ways to shift between labor and capital and implement technology solutions that allow for a hands-off implementation of whatever the [small to midsized business] strategy is at that particular property,” McElhare said. 

Ready to Pivot

While extended-stay has proven to be resilient over the course of the pandemic, renewed uncertainties will once again test the segment’s staying power. Discretionary travel, for instance, has seen an uptick since the onset of the pandemic. It’s unclear whether that trend will continue into the fall or winter, but McElhare is confident that the base of business from pure extended-stay guests will offset any potential declines in discretionary travel. Hostetler, too, notes the importance of being open to unpredictable changes.

“While we don’t have any new brands in the oven right now, this is a key time for the industry and we have to remain nimble, changing our strategies and products to meet the needs of the day,” he said. “To that end, we refined our already popular HomeTowne Studios product to better serve operators and developers. This translates into a smaller overall footprint with fewer development costs, presenting a reworked guestroom layout that benefits organization, movement and even housekeeping. It’s all about delivering the right product at the right time to both guests and our hotel partners, and this is easily the best HomeTowne Studios has ever looked.” 

As part of the overall recovery from initial losses related to the onset of the pandemic, extended-stay has been faring well. The Highland Group reports that “both economy and mid-price 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.” 

McElhare also said that traditional hotel investors are looking to extended-stay brands as a way to hedge their portfolios.