Extended-stay Hotels
Extended-stay hotels are increasingly recognized as a compelling investment in the real estate and hospitality sectors. These hotels cater to guests needing accommodation for longer periods, usually a week or more, and offer amenities like kitchenettes or full kitchens, making them ideal for travelers seeking a home-like environment. For investors, the remarkable surge in the extended stay hotel segment could be a unique opportunity for growth and resilience to economic opportunity.
Extended-Stay Hotels vs. Traditional Hotels:
Extended-stay hotels differ from traditional hotels by offering amenities that are conducive to longer stays. These include kitchen facilities, laundry services, and sometimes separate living areas. This setup provides guests with a more homely experience compared to the often more transient nature of traditional hotels.
Current Trends and Comparison with Airbnb:
The sector has seen a significant increase in investment and popularity, particularly in comparison to alternatives like Airbnb. In 2022, the investment volume in extended-stay hotels reached approximately $20.5 billion, a 5.5% increase year-over-year, accounting for a substantial portion of total U.S. hotel investment volume.¹ The pandemic and the rise of hybrid work arrangements have further fueled the demand for these types of accommodations.² While Airbnb offers a range of accommodations, the professionalism, consistency, and full-service amenities of extended-stay hotels give them a competitive edge, especially in urban markets where Airbnb availability might be more limited due to regulations.
Why Invest in Extended-Stay Hotels?
For investors, extended stay hotels present a compelling investment case. Here are some key reasons why this segment stands out:
- Resilience: Extended stay hotels have demonstrated an ability to maintain occupancy and revenue stability, even during economic downturns, due to their diverse guest base and value proposition.
- Demand: There is a consistent demand for such accommodations, driven by various factors, including business assignments, medical stays, and housing during relocation.
- Operational Efficiency: These properties often enjoy lower operational costs compared to traditional hotels, as they do not typically offer extensive amenities like restaurants or daily housekeeping.
- Attractive Returns: With a growing market share post-pandemic, coupled with numerous operational advantages, extended stay hotels can offer attractive returns as more capital flows into this segment.
Attractive Markets and Investment Potential:
The extended-stay hotel market is particularly strong in urban areas such as New York City and Washington, D.C., where they provide opportunities for acquisition at competitive prices.³ Major hotel companies are actively expanding their extended-stay portfolios, indicating strong performance and stability in this sector, even during challenging economic times like the recent pandemic. For instance, brands like Extended Stay America, WoodSpring Suites, and new entrants like Hyatt Studios reflect this growth and the potential for high returns on investment.⁴
The performance metrics for U.S. extended-stay hotels have been notably robust, setting new records for demand, Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and room revenues in recent quarters.⁵ This strong performance, combined with the sector’s resilience during economic downturns, makes extended-stay hotels an attractive option for real estate investors.
Extended-stay hotels are proving to be a lucrative investment choice, offering higher margins and lower development costs than full-service hotels. Their growing popularity, driven by changing work trends and consistent demand, positions them favorably for future growth and investment.
¹ Bergeron, P. (2023, January 23). Investors Have Winning Play in Extended-Stay Hotels. GlobeSt. GlobeSt.com
² Levy, J. (2023, July 19). Extended-Stay Hotels Continue to Gain in Popularity. CBRE. CBRE.com
³ Demuth, Z. (2023). Investment in select-service and extended-stay hotels shows no signs of abating. HOTELSMag.com. HOTELSMag.com
⁴ Hotel-Online. (2023). Extended-Stay Hotels: One of the Fastest Growing Segments in the U.S. Hotel-Online. Hotel-Online.com
⁵ Thomas, P. (2023). Report: All performance metrics up for U.S. hotels in fourth quarter. Asian Hospitality. AsianHospitality.com