Expert’s Voice: Can extended-stay hotels sustain growth beyond Covid?

Linchi Kwok, associate professor, The Collins College of Hospitality Management, Cal Poly Pomona, examines the rapid rise of extended-stay hotels in the US.

Extended-stay hotels are designed for travellers who want to stay at a ‘home’ when away from home.

Extended-stay hotels versus home-sharing facilities

Because Covid19 is primarily transmitted through direct or indirect human contacts, people are highly encouraged to avoid unnecessary human interactions, leading to more contactless self-services across all service sectors. The lack of human interactions may also change the pros of staying in an extended-stay hotel versus a home-sharing facility.

Pros of staying in an extended-stay hotel

• Staying in a place with enhanced cleaning standards reinforced by the hotel chains. Airbnb also introduced enhanced cleaning standards, but hotel chains have more control over the franchisees than Airbnb has on the individual hosts.
• Collecting travel reward points and enjoying the exclusive perks offered to frequent travellers by chain hotels. Many home-sharing platforms like Airbnb have not designed a loyalty programme to reward their loyal customers yet.
• Easy access to the amenities inside a hotel, such as a gym, meeting rooms, business centres, spas in some cases, etc.
• 24/7 onsite customer support.
• Easy reservation process with a few clicks. Reservations for a home-sharing stay require the blessing/approval of the hosts.

Pros of staying in a home-sharing facility

• Gaining eccentric experience in unique listings, such as a castle or luxury home, although hotels are also adding more luxury homes into their home-sharing listings.
• Prices could be cheaper than hotels because home-sharing hosts are not as professionally trained as the hotel revenue managers in price positioning or dynamic pricing.
• Staying in a residential neighborhood instead of commercial or tourist areas. Travellers are more likely to experience a destination as locals.
• A possibility of developing a lasting friendship with the local hosts, although social distancing and minimum human interactions are still in place in many tourist destinations.

Leisure travel and work-from-home support the growth of extended-stay hotels

Companies are cutting budgets for business travel. People are also advised to avoid any unnecessary travel. Still, people want to travel, and many leisure travellers make trips to destinations within driving distances. When travelling with kids, it would be nicer to stay in a place with a larger space and a full-size kitchen, or at least a kitchenette.

Additionally, more companies are letting employees work from home permanently. Hotels want business from those working from home. For instance, Marriott recently debuted three promotions:

• Day Pass, allowing guests to work in the hotel from 6am to 6pm.
• Stay Pass, where guests can extend the day pass with an overnight stay.
• Play Pass, targeting the work-from-home workers who may want a getaway with their family in luxury and resort locations.

When work-from-home workers travel with their families for a longer period of time, they may also like to have a larger room with a functional workspace and a kitchen/kitchenette. Extended-stay hotels will be a good option for frequent travellers who also want reward points and perks.

How are extended-stay hotels doing during Covid19?

According to a recent national report, extended-stay hotels experienced the smallest RevPAR (revenue per available room) decline since Covid19 hit in March. Extended-stay hotels maintained 54% occupancy in June, compared to all hotels’ average occupancy at 42.2%. The economy extended-hotel segment even reported a 75.4% occupancy, higher than any other category by more than 20 percentage points.

Another report released by STR in June, a leading data analytics provider for the lodging industry, also reported a similar trend.

Lower costs to build and operate an extended-stay hotel

Besides high occupancy, extended-stay hotels can be built and operated at a lower price as well. For example:

• According to a newly released cost survey in hotel development, the median cost per room for limited-service and midscale extended-stay hotels (eg Home2 Suites by Hilton) is in the mid-US$130,000s. The median cost per room for upscale extended-stay hotels (eg Residence Inn by Marriott and Homewood Suites by Hilton) is $184,000. By comparison, the median cost per room for select-service upscale hotels (eg Courtyard by Marriott and Hyatt Place) is $204,000.
• When people stay for a longer period (usually the case for extended-stay products), a hotel can hire fewer front-desk staff to perform check-in and check-out tasks, regardless of more travellers opting for mobile check-in and check-out.
• A hotel may also hire fewer housekeepers because there is no need to change the linens every day for stayover guests.
• Fewer requests from the ‘regulars’ for customer service often means lower labour costs and lower variable costs.

More extended-stay hotel brands and properties are entering the market

Extended-stay hotels definitely appeal to hotel developers. There were 525,952 extended-stay hotel rooms in the market as of mid-2020, an increase of 8.2% from last year. According to the American Hotel & Lodging Association, there are over 54,200 hotels with 5 million guest rooms in the US. Approximately one in ten guest rooms in the market is at an extended-stay hotel.

Recently, Red Lion Hotels Corporation, the owner of such brands as Americas Best Value Inn, Knights Inn and Red Lion Hotels, announced that it would reposition its GuestHouse International chain as GuestHouse Extended Stay at an upper-economy price. Aimbridge Hospitality, a hotel-management company, also added 16 Extended Stay America properties to its portfolio, representing 1,775 extended-stay hotel rooms.

Concerns about the growth of the extended-stay segment?

Extended-stay hotels seem to appeal to both travellers and investors. As long as the demand can sustain its growth, there is probably not a big concern. What do you think?

If the demand for extended-stay hotels continues to grow, is it time for the existing non-extended-stay hotels to consider converting some of their guestrooms for long-term-stay travellers?

This is an edited version of an article that appeared on Linchi Kwok’s blog.

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