Investors Have Winning Play in Extended-Stay Hotels

Coming off tremendous performances in 2021 and 2022, US select-service and extended-stay lodging properties are poised for an even better 2023, according to a report from JLL.

In 2022, extended-stay investment volume accelerated with liquidity approaching $20.5 billion, a 5.5% increase year-over-year.

Extended-stay hotels currently represent 9.6% of the total U.S. hotel supply, an increase of 3.1pp relative to 2012, according to JLL.

The sector last year accounted for 51.1% of total U.S. hotel investment volume, an increase of 210bps to 2021 and the highest portion in U.S. history. It has consistently shown strong operating performance and yields, JLL said.

“Not only have select-service and extended-stay hotels historically been more insulated during periods of economic disruption as they cater to a wider customer base, but they have achieved higher and more consistent yields relative to other commercial real estate property types,” according to the JLL report.

Impressive RevPAR Recovery

Its recovery from the pandemic measured by RevPAR was faster relative to the overall US lodging industry “and is poised to grow even further in 2023,” JLL said.

“Perhaps more importantly, the sector has been able to remain profitable during periods of economic disruption underpinned by a lean operating model and more consistent occupancy levels driven by the sector’s inherent increased average length of stay.”

JLL said extended stay represents a defensive and attractive sector with yields surpassing all other property sectors with lower levels of volatility.

Extended stay’s diverse customer demand base, lean operating model, and relatively low cost to build are what are attracting investors, evidenced by the 38,000 extended-stay rooms currently under construction (24% of the total U.S. pipeline).

Adding to extended stay’s appeal is the rapid decline in apartment rental affordability over the past two years, serving those who are in between living arrangements.

A deluge of new brands is expected to enter the space in 2023, JLL said, including Echo Suites by Wyndham, Select Suites by Extended Stay America, and Apartments by Marriott Bonvoy.

Extended Stay the ‘Backbone’ of Corporate Travel

Jan Freitag, national director of hospitality analytics at CoStar Group, tells GlobeSt.com, that small and medium-sized corporations have been the backbone of the US corporate travel recovery as larger companies have not yet fully returned to their pre-pandemic travel patterns.

“These smaller companies use predominantly limited service and extended stay hotels and it shows in the performance numbers,” Freitag said. “Extended stay was the clear winner during the pandemic, as it was housing traveling nurses, families who relocated, or travelers who simply were looking for a place to stay away from home without committing to a lease.”

He said the outlook is bright for this segment which has been – if not “recession-resistant” – then at least “recession resilient, with institutional money getting into the space, starting with the $6 billion Blackstone/Starwood deal for Extended Stay America in 2021.