Can leisure and work-from-home demand stimulate extended-stay hotel growth beyond COVID-19?
Tuesday, November 03, 2020
The lodging industry is still struggling to fill empty rooms in 2020. For months, U.S. hotels have been running at an occupancy of 50% or lower.
Not every segment in the industry suffers the same impact from the pandemic, however. Demand for home-sharing facilities had already bounced back over the summer. Airbnb reported a higher booking rate than last year. Marriott’s home-sharing arm is also doing well, seeing a sevenfold increase in booking over last summer.
Similar to what a residential rental or home-sharing facility offers, guestrooms in extended-stay hotels also feature a full-size kitchen or a kitchenette. Extended-stay hotels are designed for travelers who want to stay at a “home” when away from home.
Extended-stay hotels vs. home-sharing facilities
Because COVID-19 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 vs. 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 travelers by chain hotels. Many home-sharing platforms like Airbnb have not designed a loyalty program to reward their loyal customers yet.
- Easy access to the amenities inside a hotel, such as a gym, meeting rooms, business centers, spas in some cases, etc.
- 24/7 on-site 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. Travelers 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 travelers make trips to destinations within driving distances. When traveling 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.
- Day Pass, allowing guests to work in the hotel from 6 a.m. to 6 p.m.
- 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 travelers who also want reward points and perks.
How are extended-stay hotels doing during COVID-19?
According to a recent national report, extended-stay hotels experienced the smallest RevPAR (revenue per available room) decline since COVID-19 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.
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 (e.g., Home2 Suites by Hilton) is in the mid-$130,000s. The median cost per room for upscale extended-stay hotels (e.g., Residence Inn by Marriott and Homewood Suites by Hilton) is $184,000. By comparison, the median cost per room for select-service upscale hotels (e.g., 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 travelers 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 stay-over guests.
- Fewer requests from the “regulars” for customer service often means lower labor 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 guestrooms in the U.S. Approximately 1 in 10 guestrooms in the market is at an extended-stay hotel.
A few weeks ago, Red Lion Hospitality, 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 recently 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 travelers 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 travelers?
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