THE INVESTMENT APPEAL OF EXTENDED STAY
The extended stay segment has emerged as a favorite among hotel owners and developers, driven by compelling operational metrics and strong performance through up- and down-market cycles. Purpose-built extended stay properties typically deliver higher operating margins than traditional hotels, benefiting from lower labor costs, less frequent guestroom cleaning, and more predictable revenue.
These properties have done remarkably well during economic downturns, maintaining higher occupancy rates and more stable revenue per available room (RevPAR) compared to traditional hotels. The consistent occupancy performance of extended stay properties, particularly the high extended stay occupancy (ESOCC) rates, has proven to be a significant driver of asset value improvement. Properties achieving strong ESOCC performance typically demonstrate more stable cashflows and higher profit margins, directly translating into higher property values and more favorable cap rates. Lenders and buyers favor extended stay assets with proven ESOCC track records, especially during refinancing or disposition events, due to their consistent revenue generation during economic downturns.
The growth of the extended stay segment has also led to the establishment of dedicated industry organizations, such as the Extended Stay Lodging Association (ESLA). This group serves as a valuable resource for its members, providing networking opportunities, educational resources, and advocacy on behalf of the extended stay segment. The organization's growth and influence reflect the increasing importance of extended stay lodging within the broader hospitality landscape.
THE CHANGING TRAVELER LANDSCAPE
Today's travelers don't fit into traditional categories, creating natural demand for extended stay products. The rise of "bleisure" travel has created extended-stay demand patterns that go beyond conventional weekly cycles. Digital nomads, once considered a niche segment, now represent a significant market force, with stays often extending beyond traditional vacation lengths but falling short of traditional residential leases. The appeal of travel nursing and other nomads in the medical fields have created additional opportunities for ESOCC hotels.
Purpose-built extended stay properties are uniquely positioned to capture this evolving demand. Their design specifications – incorporating kitchenettes, workspace
areas, and residential-style amenities – directly address the needs of longer-term travelers. This alignment between product and market demand has contributed to the segment's strong performance and investor appeal.
DATA-DRIVEN DECISION MAKING
Successful extended stay operations rely heavily on sophisticated data analysis to optimize their length-of-stay mix. Commercial teams examine booking pace and patterns across different lengths of stay, identifying opportunities to build a stable base of longer-term guests while maximizing revenue from shorter stays during peak periods.
Furthermore, the availability of granular data, particularly around extended stay demand by specific length-of-stay segments (e.g., 7-29 days, 30+ days) and the performance of different property types in accommodating this demand, has become essential for accurate market analysis and site selection.
IMPLEMENTATION STRATEGY
Implementing effective extended stay strategies requires a different approach from traditional hotel operations. While operational considerations remain important, the focus shifts to creating an environment and service model that supports longer-term stays while maintaining efficiency ratios that drive investor returns.
Revenue and profit optimization in extended stay properties operates differently from traditional hotels. Rather than focusing on daily rate maximization, successful operators emphasize length-of-stay optimization and building a base of longer-term guests. This approach typically results in lower customer acquisition costs, less day to-day volatility, and more efficient labor models.
Success depends on having systems that can handle extended stay reservations and teams that understand how to balance the needs of long-term guests with revenue optimization goals. This specialized operational model contributes to the segment's attractive margin profile and investor appeal.
FUTURE OUTLOOK
Looking ahead, the existing extended stay segment appears well-positioned for continued growth and value appreciation. Demographic and workplace trends support sustained demand for longer-term accommodation options, while the segment's defensive characteristics continue to attract institutional capital investors are still interested in this segment because it’s viewed as safe and reliable.
Properties with strong ESOCC performance histories are particularly well-positioned for value appreciation, as investors increasingly recognize the correlation between consistent extended stay occupancy and asset value stability. This relationship becomes especially important in markets where cap rates are under pressure. In these scenarios, having a proven track record in extended stay performance can really boost a property's value and make a big difference when it's time to sell.
However, it's important to note that the rapid growth of the purpose-built extended stay development market may be approaching a plateau. Increased construction costs and rising interest rates could lead to a slowdown in new development projects. Additionally, as more extended stay properties enter the market, competition for guests and labor may intensify, potentially impacting occupancy rates and operating margins. The availability and analysis of granular data will be even more critical for investors and developers to make informed decisions in this evolving landscape.
The future of extended stay properties lies in further optimization of the operating model while maintaining the flexibility to capture evolving traveler needs. Properties that can balance the efficiency of the extended stay model with the ability to capture shorter-term demand during peak periods will be best positioned to maximize returns for owners and investors.
