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As a road warrior for 35 years, Tanna Pearman has crisscrossed the country, staying at luxury hotels and roadside motels. Her least favorite are boxy convention hotels with cavernous lobbies that are easy to get lost in. But at the top of her list is extended-stay lodging.
With guest rooms big enough for both working and unwinding, extended-stay hotels make it easy to combine business calls and sightseeing tours, said Ms. Pearman, a broker for Meetings Made Easy, a meeting planning company based in Las Vegas.
“It feels more like a living space than just a sleeping room,” she said.
Ms. Pearman has plenty of company these days. Interest in extended-stay hotels has grown, driven in part by a rise in remote work as well as an increase in work crews moving from site to site for infrastructure investments in projects like road building and green energy.
And because visitors tend to stay longer and need less housekeeping, extended-stay hotels — particularly those focused on more cost-conscious travelers — are less expensive to build and operate than their full-service counterparts. Recognizing the higher margins these side-of-the-highway lodgings offer, hotel companies are looking at them with fresh eyes, expanding their portfolios and adding new brands.
Hilton Worldwide, Hyatt Hotels and Marriott International have all introduced extended-stay brands this year — some so new that they do not yet have official names. Last year, Best Western International and Wyndham Hotels & Resorts announced new brands in the category, following Choice Hotels, which started a new extended-stay chain in 2020.
“It’s as hot as it can get,” said Jan Freitag, national director of hospitality market analytics at the real estate analytics firm CoStar.
Economical construction is a top priority for hotel operators. “It’s superefficient the way the design is built,” said Isaac Lake, brand leader of Project H3 by Hilton, the working name of the company’s new extended-stay hotels that are scheduled to start opening in the second half of next year.
For example, he said, Project H3 rooms are designed so the bathrooms require only a single fire sprinkler, light fixtures can be plugged in behind the bed to minimize the number of electrical lines and a single type of vinyl floor tile is used rather than multiple flooring surfaces.
Absent palatial lobbies, full-service restaurants and other large public spaces, much more of an extended-stay property’s footprint has the potential to generate revenue, despite the larger rooms. Longer stays also make them much less expensive to operate: Weekly rather than daily housekeeping is the norm, and having fewer daily check-ins and checkouts reduces the number of front desk employees needed.
Labor costs at full-service hotels were roughly 24 percent higher in 2022 than the year before, while costs at extended-stay hotels rose just under 12 percent, according to a study by Actabl, a maker of hotel management software.
“It’s predominantly housekeeping — that’s where a lot of your labor ends up being,” said Jim Chu, chief growth officer at Hyatt, which announced plans this year for a brand called Hyatt Studios. The company expects the first of what it says will be more than 100 of these hotels to open next year, he said.
A shift in how people work is a big factor underpinning the trend, said Siye Desta, an equity analyst at CFRA Research. Laptop-toting workers who can do their jobs anywhere are driving an increase in hybrid business-leisure trips.
Hotel executives are moving quickly to take advantage of the shift to remote work. “The dislocation from offices is allowing people to work from other places,” said Noah Silverman, Marriott’s global development officer for the United States and Canada. “That’s a broader dynamic that’s driving incremental business to extended-stay hotels.”
Marriott announced in June that it was developing a new extended-stay brand with the working name Project MidX Studios. Company officials said they were expecting to start booking guests at the first properties by late 2024 or early 2025.
The extended-stay hotels may also appeal to leisure travelers looking for cheaper accommodations, Mr. Desta said. Inflation is cooling, but many Americans are still adjusting to higher prices for airfares and restaurant meals. They are hunting for ways to economize, whether that means tacking vacation days onto a business trip or eating in their hotel room. (Extended-stay hotels typically have kitchens with full-size refrigerators and range tops.)
Paul Hensley said he travels nearly every week from his home in the Nashville area for his job at an e-commerce manufacturer. Hotel rooms with kitchens not only save him money, he said, they are a boon for his waistline.
“I prefer to eat a little healthier on the road,” said Mr. Hensley, 57. “The fact that it’s an entire kitchen — especially in this economy — you can buy food instead of eating out, so that can make a trip cheaper.”
Home-sharing platforms like Airbnb and Vrbo also offer lodging with kitchens and room to spread out, but industry experts say they cater to a separate market.
“I think the Airbnb customer is really looking for unique experiences,” said Mit Shah, chief executive of Noble Investment Group, a real estate investment management company specializing in the travel and hospitality sectors.
But customers who choose home-sharing can be stuck with unexpected costs like high cleaning fees or a property that is not as advertised. Hotel companies try to prevent this by imposing brand standards, Mr. Shah said.
“It brings a consistent hospitality standard of quality,” he said, which can reassure travelers. “They know what they’re going to get,” he added.
Despite the wave of brand announcements, hotel investors expressed confidence that the market will not become saturated anytime soon.
“The fact that there are potential new entrants to this space just speaks to the fact that this is a good fundamental business and a compelling segment,” said Nadeem Meghji, head of real estate for the Americas at the private equity firm Blackstone.
Blackstone teamed up with Starwood Capital to buy the hotel operator Extended Stay America for about $6 billion in 2021, a bet on a postpandemic rebound in travel. Last year, the two investment groups made another investment in this hotel category, buying 111 WoodSpring Suites properties for about $1.5 billion.
But growth is expected not just from a return to travel norms. Industry experts suggest that the impact of investment in roads, bridges, manufacturing and green energy could drive extended-stay occupancy for years.
“There are some secular tailwinds like the U.S. government spending on infrastructure,” said Mr. Desta, the CFRA analyst. “That is also expected to help long-term demand for extended stays.”
In the last two years, Congress has passed the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act, legislation meant to bolster the economy, and hotel executives predict that those laws will help fill extended-stay rooms around the country with work crews for weeks or even months at a time.
“Over half of the newly negotiated corporate business accounts our team has signed over the last 12 months have been infrastructure-related,” said Geoff Ballotti, president and chief executive of Wyndham. The hotel operator announced its ECHO Suites brand last year and says the first properties are on schedule to open by the end of the year.
“This will be years of construction with contractor workers needing rooms, and that’s really been what’s driving the demand,” Mr. Ballotti said.
Posted on 25 Jul 2023 15:00 link