Business Travel Down Due to COVID-19, But Extended-Stay Hotels Are Having a Moment
The Rise of Extended Stay
Leisure travel has made somewhat of a comeback since the initial COVID-19 lockdowns, but business travel continues to lag. One shift noted by industry observers is that extended-stay hotels, or those that offer long-term accommodation for guests, have consistently been busy and maintained high occupancy rates. Catering to weekly or months-long visits, extended-stay hotels have remained preferable for nurses, first responders, construction workers, and members of the military since the pandemic began.
Analysts say demand for extended-stay properties remains strong as investors eye the post-pandemic period. Blackstone (BX) and Starwood (STWD) joined forces last month to purchase 111 WoodSpring Suites extended-stay hotels. Within the past year, that same partnership bought out Extended Stay America for upwards of $6 billion.
Why the Extended-Stay Model Works
Extended-stay hotels are generally less expensive than full-service hotels with rates starting around $50 a night for small rooms with a kitchenette. Marriott (MAR) provides a more expensive high-end model under the Residence Inn brand, offering more square footage and better appliances. This business model tends to work well for operators due to low overhead costs.
Extended-stay hotels don’t require as much staff as full-service hotels, and analysts say profit margins are about 50% of revenue. That’s close to double what the entire hotel industry can claim in terms of net profits. Food service is limited and there is a less frequent need for check-in and housekeeping staff. As a result, extended-stay hotels are also less impacted by the current labor shortage than traditional hotels.
Extended-Stay Bucks the Hotel Industry Trend
In addition to Marriott, other traditional hotel companies such as Hilton (HLT) and Hyatt (H) are invested in extended-stay hotels. This provided many brands a lifeline during the pandemic, as evidenced by revenue per available room, also known as revpar. The entire US hotel industry shrunk by 48% in 2020, but extended-stay only declined by 33%.
The hospitality sector is now looking for ways to grow and innovate. Some brands are offering larger rooms with a one-bedroom apartment feel for around $100 per night. Others are going with a high-end approach including members-only lounges and cocktails.
Executives say as remote work changes the complexion of business travel, more employees may bring their family and opt for longer visits. Trends like this are helping extended-stay hotels survive the pandemic, and as a result, may be a much bigger part of a post-pandemic future.
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