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Hoteliers are betting on longer stays in the age of remote work

Hilton Worldwide, Hyatt Hotels and Marriott International have all introduced extended-stay brands this year

Blog / General / 2023 August 10, 2023

Tanna Berman has been a road warrior for 35 years, traveling all over the country, staying in luxury hotels and motels along the way. What she likes least are convention hotels with large lobbies where it's easy to get lost. But long-term accommodations are on the list.

Extended-stay hotel rooms are big enough for work and relaxation, said Berman, a moderator at Meetings Made Easy, a Las Vegas-based meeting planner that makes it easy to combine business calls with sightseeing.

"It feels more like a living space than a bedroom," she says.

Perelman now owns many companies. Interest in extended-stay hotels has increased, in part due to the rise of remote work and the movement of workers to invest in infrastructure for projects such as road construction and green energy.

Because vacationers tend to stay longer and require less housekeeping, extended-stay hotels, especially those geared toward cost-conscious travelers, are less expensive to build and operate than their full-service counterparts. Realizing the higher margins offered by these highway residences, hotel companies are looking at them with new eyes, expanding their investment 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 and 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 super efficient 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 minimise 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.

Labour costs at full-service hotels were roughly 24 per cent higher in 2022 than the year before, while costs at extended-stay hotels rose just under 12 per cent, according to a study by Actabl, a maker of hotel management software.

“It’s predominantly housekeeping – that’s where a lot of your labour ends up being,” said Jim Chu, chief growth officer at Hyatt, which announced plans this year for a brand called Hyatt Studios. He said the company hopes to open more than 100 such hotels next year.

Changing the way people work is a major factor underpinning this trend, said C Desta, equity analyst at CFRA Research. Workers who use laptops and can work from anywhere are driving an increase in mixed business and leisure travel.

Hotel managers are moving quickly to take advantage of the remote shift.

"Office relocation allows people to work from other locations," said Noah Silverman, Marriott's director of global business development for the United States and Canada.

"It's a broader dynamic that brings more business to extended stay hotels."

Marriott announced in June that it is developing a new extended-stay brand, tentatively called Project MidX Studios. Company officials said they plan to start booking the first hotels for guests in late 2024 or early 2025.

Desta said extended-stay hotels could attract tourists looking for low-cost lodging. Inflation is slowing, but many Americans are adjusting to higher airfares and restaurant meals. They're looking for ways to save money, whether it's vacation travel or dining in a 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, Tennessee, area for his job at an e-commerce manufacturer. Hotel rooms with kitchens not only save him money, but he also said, they are a boon for his waistline. 

“I prefer to eat a little healthier on the road,” said 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, CEO of Noble Investment Group, a real estate investment management company specialising in the travel and hospitality sectors.

But clients who choose to share a home can face unexpected costs, such as high cleaning fees or properties that don't live up to the hype. Shah said hotel companies are trying to avoid this by adopting fire regulations.

"It brings a unified standard of hospitality quality," he declares, reassuring travelers. "They know what they're getting into."

Despite the overhype of brand advertising, hotel investors have expressed confidence that the market won't be saturated anytime soon.

"The fact that there are potential new entrants in this space is a testament to a good underlying business and an attractive sector," said Nadim Maggi, head of real estate for the Americas at Blackstone. 

Blackstone has teamed up with Starwood Capital to buy hotel operator Extended Stay America for about $6 billion (nearly $9 billion) in 2021, betting on a recovery in travel after the pandemic. Last year, the two investment groups reinvested in those hotels, buying 111 WoodSpring Suites properties for $1.5 billion. 

But growth doesn't just come from a return to travel standards. Industry experts say the impact of investments in roads, bridges, manufacturing, and green energy could make people stay longer.

"There are long-term headwinds, such as US government spending on infrastructure," said Desta, an analyst at CFRA. "This would also help meet the long-term need for extended stays."

Over the past two years, Congress has passed legislation aimed at stimulating the economy, including the Jobs and Infrastructure Investments Act, the Inflation Reduction Act, and the CHIPS and Science Act, which hotel managers they hope will help fill long-term vacancies in rooms in the country. The state works for weeks or even months at a time.

"More than half of the corporate  accounts our team  signed new deals with in the last 12 months were infrastructure-related," said Jeff Pallotti, president and CEO of Wyndham. The hotel operator announced its launch last year. The first hotels are expected to open at the end of this year.

"Construction workers need rooms, and it's going to take years, and that's really what's driving the demand," Palotti said.

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