NASHVILLE, Tennessee — The flexibility and core demand drivers made extended-stay hotels a darling of the hospitality industry through the pandemic and the following recovery.
Even now, as extended-stay hotels have seen a bumpier road in recent months, the segment continues to be desirable among hotel owners and operators, as evidenced by the discussion in the "Extended Stay's Blurred Lines" panel at the 2024 Hotel Data Conference.
During the pandemic, the extended-stay segment saw an increase in demand from government travel as well as people staying longer because they were working remotely, said Parul Suri, vice president of sales and revenue at Placemakr.
“It was just a better way for people to travel,” she said.
There was a dip in performance this year because airline travel became more expensive, making it more difficult for larger families to travel, she said. That’s still an issue in leisure demand, but extended-stay hotels are still a sustainable segment to operate in.
“If you could flex your asset, or if you could be like, ‘Hey, I just want to play in that 14-plus night, I could play that five-plus night, I could play that three-plus night, and I could price it accordingly,’” Suri said. “I think that you could play in different markets, and then you’re not very stuck with how you want to operate your asset.”
Extended-stay hotels will always be a desirable investment for owners and operators because of the model’s profitability, said Emily Feeney, senior director of capital markets and investments at Noble Investment Group. By managing the number of touch points employees have with guests, they have control over all expenses.
“All segments are experiencing inflation costs and various headwinds, but at the end of the day, if this segment has the highest operating margin, it will continue to be very desirable,” she said.
Concord Hospitality works with the Highland Group for its reports and statistics on the extended-stay segment, said Karen McWilliams, vice president of revenue strategy at Concord Hospitality. In the mid-year report, extended-stay hotel construction this year is up 62% compared to last year.
“They’re here, they’re coming, they’re going to stay,” she said.
Understanding the Segment
Hotel brands used to have specific goals for extended-stay, and if companies didn’t meet those goals, they weren’t performing well, McWilliams said. The brands aren’t doing that anymore because there’s no one right number.
“It depends on how we’re going to optimize the business,” she said.
The magic in it all is the analysis, she said. When looking through a tier analysis, hoteliers are running optimization scenarios and looking at different lengths of stay, she said. There’s no hard-and fast rule that Residence Inn stays have to be seven to 15 days, 16 to 29 days or 30 days or more.
“You also don't want to change your tiers every single week, because then you really don't know what the outcome is,” McWilliams said. “Having good data to be able to understand the arrival patterns, the length of stay, the different room types and how they're each performing — that's where you find the exact right mix, the exact right tier that's going to work for your hotel.”
Finding that sweet spot for an extended-stay hotel creates a platform to springboard from to be able to set goals and consistently improve, she said.
With Placemakr, it depends on the market where its operating, Suri said. Its properties are flexible, so the stay model depends on the demand coming in. One being profitable doesn’t take away from the profitability of others.
“There will be seasons when we know that the other segments are not going to operate as well, and that time we would be like, ‘All right, we want more of the extended-stay segment,’ and we can cater to it, while we can also cater to the other segments and walk that blurred line very easily,” she said.
The goal is to make sure it’s turning that demand into profitability, she said. If there’s a segment that’s not going to be profitable, it won’t focus on it for the time being.
Placemakr has a team that focuses on extended-stay demand, which has micro-segments within it, Suri said. There are relocations, construction crews, airline crews, interns, sports groups and entertainment groups, among others.
Noble’s asset management team focuses on having its extended-stay hotels run on the extended-stay model regardless of whether there’s an economic downturn, Feeney said. The company doesn’t want to give up on rate and operating these hotels as transient-focused properties.
It’s necessary to have a management team, including its director of sales and general manager, that is active, tuned in and talking with all the key demand drives of the business and can pivot as needed, she said.
The Right Locations
Noble as a whole looks at all markets, and it has extended-stay hotels across the U.S., Feeney said. The Sunbelt region has been optimal due to its population growth trends and the lower cost to buy land. There may be more affordable pieces of property to develop, but it’s also important to consider the full underwriting of the project, the flags that are available and the associated costs as well as how long entitlements could take.
“Some more historic cities prohibit the development entirely,” she said.
Suri said it’s difficult to underwrite deals in central business districts, so moving outside of city centers has helped make more deals pencil. Having properties on the outskirts also helps because a lot of extended-stay demand would rather be outside of the city if possible.
Any type of lifestyle center has also shown to be attractive to extended-stay guests, Feeney said. The location is also going to be the guests’ amenity base.
“If you are a traveling nurse and you get off of work from your hospital shift, you go back to your hotel, you change your clothes, and then you want to go out to dinner, you want to go shopping, do whatever,” she said. “Having a place to go socialize and live — live, work, play, they say — is definitely something that the customer is looking for.”