In the hospitality market, extended-stay hotel construction is booming. Lodgings Econometrics reports that over 1/3 of all hospitality constructions in Q1 of 2024 were extended stay hotels and an increasing number of hotel brands are branching out into extended stay in addition to their full-service hotel and resort properties. Future Market Insights reports that extended-stay hotels have a projected compound annual growth rate of 11.8% and offer a lot of promise for investors in terms of both quick turn-around and lucrative cash flow.
The conditions in today’s economy have become perfect for the extended-stay business model. These hotels like the ever-present Extended Stay America are efficient to run, appealing to the growing population of traveling professionals, useful for families in a troubling housing market, and quick to construct. The stars have aligned, so if you invest in hospitality construction, now is the time to ask yourself: Should you build an extended stay hotel?
What is an Extended Stay Hotel?
An extended stay hotel offers apartment-like rooms with full kitchens, more spacious living areas, and on-site laundry. It is possible for guests to live like locals from their room, preparing food bought from the grocery store and doing their own laundry for a few days to several months at a time.
The extended stay hotel model is more welcoming for professionals who are temporarily relocated, people in the middle of a household move, and independent-minded travelers who prefer to be self-reliant. Not only are the rooms more accommodating, but the room design also reduces the need for on-site amenities and concierge services.
The term “extended stay” as you might guess, also suggests the ability to welcome guests for much longer periods of time at an economic price, often comparative to a rental apartment, while also able to accommodate more traditional short-stay guests.
Extended-Stay Hotel Demand is Higher Than Eve
The number of traveling professionals has boomed since the pandemic. It’s not just the remote work trend. Remote work caused a revolution of “digital nomads”; both individuals and jobs accepted that work can be done on the road without the usual rigmarole of “business trips”. Professionals now need a more home-like environment where they can work while away from home, either remotely or while attending a temporary job location.
AirDNA reports the popularity (and then dramatic crash) of Airbnb has increased public interest in “whole home” type lodgings, which are reflected in the extended stay style. From one night to several months, many travelers discovered that they prefer to have their own kitchen and laundry rather than relying on hotel staff.
The recent federal infrastructure projects have relocated many construction workers, leading extended stay hotels to appear near them. This has also inspired new hotels to be built near other relocation centers such as factories and tech hubs.
Extended stay hotels appeal to relocating families, as the spaces are far more accommodating for parents and children traveling together compared to traditional hotel rooms. Families struggling to find affordable housing in many post-pandemic markets are also staying for longer periods while seeking a long-term lease.
In areas with colleges and universities, the rising cost of student housing and the need for less-than-annual lodgings has led many students to take up residence in extended stay hotels.
Needless to say, there is abundant and still growing demand.
Why Extended Stay Hotels are More Economical to Build & Run
In addition to the high rate of demand, investors are enthusiastic about extended stay hotels due to their significantly lower construction and operational costs. Guests are more self-reliant and expect fewer concierge amenities from an extended stay hotel. This means fewer facilities and a smaller staff.
A kitchen, restaurant, and room service are not required. Many extended stay hotels also do not offer breakfast, with no loss of guest demand. Guests cook their own food in their individual kitchens.
A coin operated laundry room is provided instead of an internal or contracted laundry service. Linens are often changed 2-3 times a week instead of every day in extended stay hotels. Guests also stay longer with less frequent room turnovers. Together, these minimize the cost of laundry, the number housekeeping staff needed, and the labor required for room turnover each day.
Hotel pools are optional, and spas are not required, as guests rarely book to relax. Gyms are beneficial and offered by EchoSuites by Wyndham but are not necessary.
These factors together mean that extended stay hotels can be constructed with a much more economic and simple design with lower operational overhead.
Benefits for Investors in Extended Stay Hotels
Extended stay hotels have been found to offer significant profit opportunities, both in terms of rapid construction potential and guest revenue. Profitability is achieved through strategic placement, thoughtful design, and operational efficiency.
Rooms are comfortable and utilitarian, giving guests the ability to provide for their own needs. Technology makes it possible to streamline customer service, including check-ins, door locks, and service requests.
Extended stay hotels are also resilient in economic downturns due to their diverse guest base, relatively low room cost, and their facility as supplementary housing.
Matt McElhare of Choice Hotels International reports that a midscale extended stay hotel can operate with about 11 full-time staff alone. He concludes that it is possible to increase gross operating profits between 10 and 15 percent over select-service hotels. There is still a two-to-one supply imbalance that supports significant continued growth when investing in the extended stay hotel sector.
Business Partnership Potential
Lastly, extended stay hotels can partner with local businesses on several levels to increase profitability.
Partnering with large companies that often relocate staff can ensure a steady flow of guests and predictable long-term stays. You may partner with local universities to provide safe student housing that is included in the bus route, providing you with a constant influx of student guests each semester. Westminster University, for example, has several hotel partnerships.
You can also partner with services like grocery delivery, takeout restaurants, and even childcare facilities that will help to enhance the convenience and travel/work lifestyles of your guests.
For example, Grubhub has partnered with several extended stay hotel brands like Homewood Suites and InTown Suites to provide food delivery.
Factors to Consider When Building an Extended Stay Hotel
When planning to buy or build an extended stay hotel, naturally there are a few factors that should be considered. Zoning, necessary building features, local market demand, and stand-out amenities can all influence the overall profitability of each extended stay hotel based on location and design.
Building Requirements
An extended stay hotel requires proper zoning and strategic positioning. The building design itself should feature full-sized rooms designed as small apartments, each with a full kitchen, full bathroom, and a spacious family area. Rooms should have one or two beds with a capacity for additional fold-out beds and cots for children and families.
Extended stay hotels amenities should include coin-operated laundry facilities, linen service every few days, and staff available for guest assistance and emergency services.
Market Demand
The local market demands extended-stay lodgings. Valuable market conditions include nearby work sites that attract relocated workers, nearby colleges and universities, high housing prices, and low local availability of affordable housing.
Stand-Out Qualities
Many extended stay hotels are minimalist. Your property can stand out to guests by offering comfortable rooms that resemble furnished apartments and lifestyle-enhancing amenities such as a pool or well-appointed gym. Guests also appreciate high-tech features, app-connected guest services, and good quality internet connection.
Homewood Suites by Hilton stands out by having restaurant and breakfast services when many extended-stay hotels do not. Liv Smart focuses on independence with dishwashers in each suite instead.
Guests without a personal vehicle in the area will value extended stay hotels near a grocery store or affordable restaurants. You might also provide pet-friendly rooms on the ground floor to appeal to a large niche of relocated travelers with pets.
Guests without a personal vehicle in the area will value extended stay hotels near a grocery store or affordable restaurants. You might also provide pet-friendly rooms on the ground floor to appeal to a large niche of relocated travelers with pets.
Timing
The market is hot for extended stay hotel construction, as demand for supply is still two-to-one, and demand is still on the rise. In the right location, now is a very profitable time for new, modern, and comfortable extended stay lodgings.
Considering Building an Extended Stay Hotel?
Extended stay hotels are on the rise, and demand is still significantly outpacing supply. Properly positioned, building a new extended stay hotel that stands out in comfort and modernity while achieving operational efficiency will provide a profitable investment opportunity. Furthermore, a new construction gives you the opportunity to ensure your extended stay hotel outshines older buildings and appeals strongly to your target guest populations based on your chosen location.
Explore the potential for investment in extended stay hotels with NewGen Advisory. Contact us to discuss potential markets and opportunities.