Extended-stay hotels are the long-term game

Because they can work anywhere, the lodging industry is banking big on travelers who extend their stay.

Extended-stay hotels are the long-term game

Extended-stay hotels are gaining popularity as travel increases and remote work blurs the lines between leisure and business.

According to data from STR (a research company), the average occupancy rate of extended-stay properties climbed last year to 73% percent compared to only 56 percent for hotels. Real estate developers and big hotel operators are making huge investments to make this moment last.

Daniel Finkel, chief executive officer of TripActions corporate travel service, says that there is a clear blurring between business and pleasure.

This blur has made Airbnb and other vacation rental companies money-mining machines. Last week, Airbnb CEO Brian Chesky stated that 2021 would be the company's best year. He also spoke about the changing landscape. Over the past two decades, the average stay has increased by 15%. Airbnb now has half the nights booked for stays longer than a week. Long-term stays lasting 28 nights or more are the fastest growing category of bookings.

Hotel industry has listened.

While extended-stay hotels make up less than 10% of the overall lodging market, their share is growing according to STR. Nearly every major hotel chain has plans or is adding properties to cater to guests who are looking to stay for a while. Extended Stay America, Homewood Suites By Hilton, and Residence Inns by Marriott are a few examples of chains that offer fewer amenities but have more space and full kitchens. They also tend to be less expensive than full-service hotels.

Wyndham Hotels & Resorts already owns the Hawthorn Suites mid-priced chain. This spring, Wyndham will launch its first economy-level extended-stay brand. Geoff Ballotti, CEO, announced the launch during an earnings call last week with investors. He described the extended-stay market to be "recession proof" and "pandemic proof."

Kevin Davis, Americas CEO of JLL's hotels and hospitality division, said that extended stay is "one of the fastest growing segments in the hospitality industry." The sector has attracted tremendous investor interest."

Blackstone Inc., Starwood Capital Group (which includes almost a dozen hotel brands), and real estate heavyweights Starwood Capital Group paid $1.5 billion in January for more than 100 WoodSpring Suites properties. This deal was made just two months after they paid $6 billion for Extended Stay America with over 650 locations in the United States.

What is the attraction? Carter Wilson, senior vice-president of consulting at STR, stated that 2019 was the last 'normal year' for the industry. The average profitability for full-service U.S. hotel rooms was 27 percent. He said that extended-stay properties can add 40 to 50 percent to their bottom line, even when prices are low.

For $75 per night, you can book a five-night Extended Stay Minneapolis stay. The Residence Inn at Marriott is one of the more expensive extended-stay options. It costs $111 per night.

Operating costs are also lower for longer stays and less amenities. Housekeeping is usually offered once per week rather than every day. If available, room service is usually limited. The front desk is less staffed because there are fewer people coming and going.

Peter Caputo is a Deloitte senior hospitality executive. He believes the luxury market could be changing as new players enter the market. Full-service hotels are seeing more guests who stay for at least a week. People are used to having more space in their homes and will now travel more and expect more luxury amenities at their accommodations. He said it was similar to what boutique hotels might offer.

WhyHotel converts apartments that have not yet been rented into hotel rooms for extended stays. There are properties available in Nashville, Tennessee. A two-week stay for a studio starts at $160 per day. Prices in New York City are higher than those in Miami.

Some hotel operators want to make a profit by catering to a completely different kind of traveler: someone who often has four legs. Hilton WorldWide Holdings recently made all extended-stay properties pet-friendly. The company charges $50 per night for pet fees in its Homewood Suites or Home2 Suites. Hilton also has partnered with Mars Petcare, a pet food giant, to provide on-call pet experts who can answer questions about pet behavior, health, and wellness.

This could be a selling point to pet owners who have yet road-tested their new companions since the outbreak.


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