The pandemic and hybrid work setups have fueled demand for extended-stay hotels, making them a rapidly growing segment in the hospitality industry. These hotels offer cost-effective options for longer stays and boast higher margins and lower development costs compared to full-service hotels.
This attractiveness to investors is leading to increased funding for extended-stay properties, particularly those associated with well-established brands.
As long as the potential for higher returns persists, we anticipate continued capital investment in this sector.
Recognizing the segment’s potential, major hotel companies have made significant strides in expanding their extended-stay portfolios.
Over the past decade, globally recognized hotel brand families have grown their extended-stay offerings by over 50%, achieving a CAGR of 7.1%, outpacing the overall U.S. market’s growth rate of 3.2%.
Furthermore, major hotel companies are consistently announcing the introduction of new extended-stay brands through both development and acquisitions, with five new brands unveiled since the fall of 2022.
In recent months, several major hotel chains have announced significant expansions in the extended-stay segment. Wyndham unveiled plans for over 200 properties under its ECHO brand.
Hilton is set to open numerous Project H3 by Hilton hotels. Marriott introduced Project MidX Studios, and Hyatt launched its Hyatt Studios brand, all targeting the midscale extended stay market.
This expansion by leading brands into lower-price tier extended-stay hotels, both through new developments and conversions, aims to standardize the guest experience, potentially boosting operational performance.
The new brands not only attract a fresh pool of potential loyalty members but also offer opportunities for unit growth, higher royalty, and franchise fees.
In comparison to limited-service hotels within the same chain scale, extended-stay hotels exhibit higher occupancies and lower average daily rates (ADR), while their revenue per available room (RevPAR) remains comparable.
Typically, ADR offers better profit flow than occupancy, but the extended-stay model differs significantly, particularly in terms of lower housekeeping costs due to longer guest stays.
Based on data from CBRE Hotels Research’s Trends® in the Hotel Industry database, extended-stay hotels consistently show lower housekeeping labor costs when compared to limited-service hotels.
Extended-stay hotels also enjoy savings in various other areas, including front office staffing, laundry, guest supplies, and travel agent commissions, all thanks to fewer check-ins/check-outs and longer guest stays.
For the Upper Midscale segment, labor costs for the rooms department are approximately $18.20 per occupied room (POR) for extended-stay hotels, whereas traditional hotels incur $20.84 POR.
In the lower-priced tier (Economy and Midscale hotels), limited-service hotels have labor costs per occupied room more than double that of extended-stay hotels, amounting to $20.34 versus $9.31 POR.
The longer-term stays and higher occupancy levels of extended-stay hotels allow them to manage operations with fewer staff, resulting in significant labor cost savings compared to shorter-term stay limited-service hotels.
Source : hotelnewsresource.com
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