Every time you blink, another hotel company has announced a new extended stay brand. The category is at the forefront of industry development in the United States, with the economy and midscale segments leading the way.
The proof is in the numbers. According to Future Market Insights, projections suggest that the market is poised to maintain a steady pace of expansion, with an estimated compound annual growth rate of 11.8 percent from 2023 to 2033. Such consistent growth is expected to propel the market to a value of US $166.58 billion by the end of 2033.
Why the boom? Return on investment is always a good place to start. With smaller amenity spaces and no food and beverage outlets, extended-stays are usually less expensive to build and to maintain than select-service or full-service hotels. Furthermore, the long-stay model has inherent operating efficiencies. For example, staffing requirements are lower, as housekeeping is a weekly, rather than a daily affair, and fewer check-ins and check-outs mean less demand on the front desk. An economy extended stay can operate with less than eight full-time employees, while a midscale property can run with a full-time staff of 11, according to Matt McElhare, senior director of extended stay brands at Choice Hotels International. All of these efficiencies, according to McElhare, means it’s possible to increase gross operating profit between ten and 15 percent over select-service, according to McElhare.
Of course, more supply isn’t profitable without demand. But the demand is there. It comes partly from the rise in remote workers; partly from the increased need for temporary lodging for workers employed to carry out new federally-approved infrastructure projects; and partly from the need for housing in markets where apartment rentals are limited or too pricey.
Jamie Lane, chief economist for AirDNA, which analyzes short-term rental data, says the success of AirBnB and its cousins provided proof of concept. “Because of the success of AirBnB in appealing to the segment of people who have flexibility in where they are working and living, the hotel industry realized there weren’t enough extended stay hotels in relation to the demand,” said Lane. “Prior to the pandemic, 13 percent of short-term rentals were for more than 28 days. During the pandemic, that number jumped to 20 percent. “ As a result, during the pandemic, the AirBnB proved more resilient than the hotel model writ large.
That said, the extended-stay segment outperformed the rest of the hotel industry during the pandemic.Extended stay hotels had 50 percent higher occupancy in 2020 than standard hotels during Covid, according to the CoStar Group’s STR division, which analyzes hospitality industry data.The success was duly noted by investors, developers, and hotel companies alike.
Choice’s McElhare says the extended-stay segment “is still underbuilt, with a two to one supply imbalance that should support a lot of continued growth in the space, particularly at the lower price points.” That’s why several hotel companies, during and post-pandemic, have been coming out with new extended stay brands.
Who’s doing what
Wyndham’s ECHO Is Resonating
Wyndham’s new entry is ECHO Suites, a lower midscale product introduced in 2022. The purpose-built, all new-construction, 124-room ECHO Suites brand supplements Hawthorn Suites, a midscale extended-stay that Wyndham has owned for 15 years.
According to Wyndham’s Chief Development Officer Chip Olsson, “We noticed there was a gap in our portfolio and in the market for all new-construction extended stay. So, we designed a prototype designed for operational and economic efficiency. We discovered the sweet spot was a new build with 124 rooms. When you operate a full-service 124-room hotel, you need 23-25 full-time employees. With the ECHO Suites model, you need 7 ½.”
The brand was introduced to investors about a year and a half ago, and in that time, 265 hotels have been signed. Several have broken ground and the first are expected to open in the first quarter of 2024.
Many of the projects align with locations impacted by the 2021 Infrastructure and Jobs Act and 2022 CHIPS and Science Act. Wyndham believes these pieces of legislation, which call for developing infrastructure and building chip manufacturing plants around the United States, will drive business “just outside the major metropolitan areas and around the ring roads.” He adds, “We are big believers in the infrastructure program and know where that spending is in each state. In fact, we have one person dedicated solely to working on where the infrastructure spending is in each state. We share that information with developers, who can then build in these prime locations.”
Choice Opts To Grow Extended Stay
Choice has been in the extended-stay business since the early 2000s. It started off with Mainstay Suites, a new-build midscale brand, and Suburban Studios, an economy conversion brand. Then, during the last five years, economy extended-stay brand Woodspring Suites came into the fold through an acquisition and Everhome Suites, the newest Choice brand, was developed in-house. Its entire extended stay portfolio, spanning multiple brands and segments, is projected to grow by 15 percent annually for the next five years.
The big point of inflection was 2018, when Choice acquired Woodspring Suites, at the time the fastest-growing extended stay in the industry. That brand has grown to 231 hotels, with 216 in the pipeline. According to McElhare, developing and growing that brand “gave us a roadmap for how to drive success in the sector.” It applied that roadmap to the development of Everhome Suites, a new-build midscale extended stay brand introduced in 2020.
Everhome is on the cusp of major growth, with one hotel in Corona, California open and 60 more in the pipeline.Colorado-based real estate investment firm ServiceStar Capital Management—one of the largest extended stay developers in the nation—has signed on to develop 21 Everhome Suites.
Ron Burgett, senior vice president of extended stay development for Choice, says the company is interested in working with developers who appreciate the differences between extended-stay and the rest of the hotel industry, “We think that successfully operating an extended-stay property is very different from a traditional hotel. That’s why we require our developers to team with an experienced management company that understands the sector.”
- Hilton announced the addition of a lower-midscale extended stay brand, now named LivSmart Studios, back in May and broke ground on the first property, in Kokomo, Indiana, in October, 2023. It is slated to open next spring. Shortly after the Hilton announcement, Marriott International said it would expand into the affordable midscale lodging segment with a new extended stay brand called StudioRes. Marriott will partner with property manager Concord Hospitality and real estate private equity company Whitman Peterson on the first projects.
- Hyatt is in the process of making its first foray into the midscale segment, albeit the upper midscale segment, with its new extended stay entry, Hyatt Studios. While upscale extended-stay brand Hyatt House has been in existence for more than a decade, Hyatt Studios is fresh off the drawing board. The brand conceived in 2022, announced in the spring of 2023, and the first properties are expected to open in 2024. According to Jim Tierney, senior vice president, development and owner relations, the brand has been supported by multi-unit development deals with more than a dozen developers. While some of these developers have worked with Hyatt before, some are new to the brand. According to Tierney, the lower cost of entry allows Hyatt to expand its ownership base. “Hyatt Studios offers an on-ramp for developers to join the Hyatt family and work their way up through the system.”
- Additionally, the brand opens up new markets for Hyatt. According to Emily Wright, vice president and global brand lead Hyatt’s Timeless Collection, “Having an upper-midscale brand means we can go into secondary and tertiary markets where Hyatt hasn’t existed before.” To that point, the first three announced Hyatt Studios will be in Mobile, Alabama, Portland, Maine and Marysville, California.
A Cautionary Note
With so much development, what could possibly go wrong? Jan Freitag, the veteran national director of hospitality analytics at CoStar Group’s STR division, sounds a cautionary tale.
“I trust that the brands have done their homework in terms of demand. But what I wonder about is this,” said Freitag. “The very health of midscale extended-stay brands hinges on a long length of stay. The extended stay profit model gets destroyed if guests stay less than a week.” With shorter stays, he says, staffing requirements go up and if that happens, “the model falls apart. So, managers need to have discipline around rates and room availability…bypassing shorter stays in the hopes of booking longer stays.” .