"An Insight on Extended Hotels"

In a global bad economy during the COVID-19, it was challenging time for all the different hotel businesses. However, one segment that outperforms the rest of the hospitality industry is extended stay hotels. They tend to have bigger rooms containing well-equipped kitchens and are priced for the budgeted guests. They offer long term accommodation for people who need to stay; for a week, a month, six months, multiple years or longer, such as businessmen on extended trips, families on long holidays, and/or people who are seeking more permanent places to stay. This means these hotels can almost count on always being profitable and remaining stable in the market despite unstable conditions of the world economy. Extended stay bounces back despite the pandemic crisis and it has reached a record high in recent years.

So… what are extended hotels?

Extended-stay hotels are also known as long-term stay hotels (sometimes referred to apartment hotels or serviced apartments). Due to more prolonged period, extended stay hotels often offer discounted rates. In addition, they have all the necessary amenities like self-serve laundry and in-suite kitchens and just like traditional hotels, extended stay hotels vary in price and style. Some offer apartment or studio-style living, while luxury options have multiple bedrooms, higher square footage, and special amenities such as private patios. Some of the extended-stay hotel brands are TownePlace Suites, Candlewood Suites, Hawthorn Suites by Wyndham and many more. Home2 Suites by Hilton received the highest-rated extended-stay hotel brand in the United States of America in 2018.

Let's get to the statistics...

According to Savills research in September 2020, they found that the largest global operators show that extended stay properties have outperformed their other hotel sectors. The result below illustrated the efficiency benefits in the extended-stay sector.

IHG stated a 46% drop in revenue per available room (RevPAR) for its extended stay brand – Staybridge Suites – V.S., a 59% drop across all brands in EMEA and Asia.

Hilton stated a 41% drop in RevPAR for its extended-stay brands – Homewood Suites and Home2 Suites – V.S., a 54% drop across all brands globally.

Marriott stated a 46% RevPAR decline for its Residence Inn brand, V.S. 59% for all brands (North America only).

HVS Studies shows that the Q2 2020 performance statistics of brands reported by public companies reflecting the resiliency of the economy, extended-stay brands during the first months of the pandemic.

As shown from the charts above, economy, extended-stay brands experienced the lowest amount of impact, although still 13% decline on average. On the opposite side, occupancy for the luxury brands experienced an unprecedented drop by 67% on average. In addition, economy, extended-stay hotels and limited-service hotels were less affected by corporate travel, corporate group cancellations, group-size restrictions, and convention centre closures.

Marriott International Reports Second Quarter 2020 Results showed that out of all of its brands, Residence Inn had the highest occupancy rate, at roughly 40%, beating out the 18% at Courtyard and 8% at Ritz-Carlton. Remarkably, shares of real estate investment trust Extended Stay America are up 90% from mid-March, outperforming other hotel-segments stocks. In an investor presentation in June, the company reported that 84% of guests who stayed at their properties used the kitchen. Researchers say that in an environment where people are trying to social distance due to Covid-19, guests tend to cook at home more.

The pandemic is severely challenging the hotel industry. Guests are not willing to travel. The level of travelling is not anywhere near pre-COVID levels despite the lift of travel restrictions. This has caused severe pressure on hotel businesses. Morris Studies in February 2021 illustrated that "the revenue per available hotel room decreased 50% between 2019 and 2020, and about 25% of all hotels in the country are at risk of foreclosure."

"In May, luxury hotels were operating at 15% of capacity, compared to economy hotels at 40%. These numbers suggest that the clientele that economy hotels rely on, such as truck drivers and extended-stay guests, are still using hotels at significant levels. Tourists, on the other hand, are not. And these figures signal that the luxury hotel industry could take longer to fully recover. We don't know when tourism and hospitality will fully recover. And some properties will never bounce back from the lost income. If the current downturn lasts until 2023, many more hotels will be forced out of business, a trend that could be particularly common with luxury hotels."

All in all, extended hotel outperforms other hotel segments, especially luxury sectors. However, the key element here is the rebound in guest demand. As a result, PWC anticipated that there would be some recovery for the industry for the second half of 2021.

Korosh Farazad
Founder and Chairman of Farazad Group of Companies
Farazad Group Ltd.