Source: LODGING
by Will Sanford
Feb. 25, 2020
Extended-stay hotels are rounding a decade of unprecedented growth in the United States. Over the past 10 years, extended-stay supply has grown at a rate of 5.3 percent annually, not only outpacing the annualized supply growth rate of 1.1 percent for all hotels, but also higher than the growth rate for any other hotel type. A key force driving this emergence in extended-stay supply is favorable demographic tailwinds.
Catering to a unique set of customers—from business travelers in town for training to households relocating to a new area for work—extended-stay hotels have historically found strength in suburban submarkets, often in close proximity to office parks. In fact, in 2000, 75 percent of extended-stay supply was found in suburban locations. Today, however, that number has dropped to 62 percent. So, where is the supply shifting? It’s following the worker.
As many markets across the country experience a suburban-to-urban shift, the extended-stay model is not only riding this demographic undercurrent, it is thriving in many submarkets outside of its traditional suburban strongholds.
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First, extended-stay supply is primarily located in submarkets where income and labor force participation have increased the most. To that end, extended-stay supply is much less prevalent in areas where these demographic trends had the lowest rates of growth.
Second, occupancy and average daily rate (ADR) are higher in submarkets where labor force participation is highest. Occupancy is 4 percent higher, and ADR nearly 18.7 percent higher in the submarkets with the highest growth, compared to those with the lowest growth.
Overall, as supply grows into new submarkets and reaches new demographics, it appears that the extended-stay supply is adapting well to current trends and producing comparatively higher occupancy and ADR in areas with more favorable demographic tailwinds.
