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Can leisure and work-from-home demand stimulate extended-stay hotel growth beyond COVID-19?

The lodging industry is struggling to fill the empty rooms in 2020. For months, U.S. hotels are running at an occupancy of 50% or lower. 

 

Not every segment suffers the same impact from the pandemic, however. Demand for home-sharing facilities had already bounced back over the summer. Airbnb reported a higher booking than last year. Marriott’s home-sharing arm is also doing well, seeing a sevenfold increase in booking over last summer. 

 

Similar to what a residential rental or home-sharing facility offers, guestrooms in extended-stay hotels also feature a full-size kitchen or a kitchenette. Extended-stay hotels are designed for travelers who want to stay at a “home” when away from home.


A room at a extended-stay hotel
A guestroom at the Residence Inn Miami Sunny Isles Beach
 

Extended-stay hotels vs. home-sharing facilities 

 

Because COVID-19 is primarily transmitted through direct or indirect human contacts, people are highly encouraged to avoid unnecessary human interactions, leading to more contactless self-services across all service sectors. The lack of human interactions may also change the pros of staying in an extended-stay hotel vs. a home-sharing facility.    

 

Pros of staying in an extended-stay hotel 

 

  • Staying in a place with enhanced cleaning standards reinforced by the hotel chains. Airbnb also introduced enhanced cleaning standards, but hotel chains have more control over the franchisees than Airbnb has on the individual hosts. 
  • Collecting travel reward points and enjoying the exclusive perks offered to frequent travelers by chain hotels. Many home-sharing platforms like Airbnb have not designed a loyalty program to reward their loyal customers yet. 
  • Easy access to the amenities inside a hotel, such as a gym, meeting rooms, business centers, spas in some cases, etc. 
  • 24/7 on-site customer support. 
  • Easy reservation process with a few clicks. Reservations for a home-sharing stay requires the blessing/approval of the hosts. 

 

Pros of staying in a home-sharing facility 

 

  • Gaining eccentric experience in unique listings, such as a castle or luxury homes, although hotels are also adding more luxury homes into their home-sharing listings.    
  • Prices could be cheaper than hotels because home-sharing hosts are not as professionally trained as the hotel revenue managers in price positioning or dynamic pricing 
  • Staying in a residential neighborhood instead of commercial or tourist areas. Travelers are more likely to experience a destination as locals.
  • A possibility of developing a lasting friendship with the local hosts, although social distancing and minimum human interactions are still in place in many tourist destinations. 

 

Leisure travel and work-from-home support the growth of extended-stay hotels

 

Companies are cutting budgets for business travel. People are also advised to avoid any unnecessary travel. Still, people want to travel, and many leisure travelers make trips to the destinations within driving distances. When traveling with kids, it would be nicer to stay in a place with a larger space and a full-size kitchen or at least a kitchenette. 

 

Additionally, more companies let employees work from home permanently. Hotels want the business from those working from home. For instance, Marriott debut three promotions last week: 

 

  • Day Pass, allowing guests to work in the hotel from 6 AM to 6 PM. 
  • Stay Pass, where guests can extend the day pass with an overnight stay. 
  • Play Pass, targeting the work-from-home workers who may want a getaway with their family in luxury and resort locations. 

 

When work-from-home workers travel with their families for a longer period of time, they may also like to have a larger room with a functional workspace and a kitchen/kitchenette. Extended-stay hotels will be a good option for frequent travelers who also want reward points and perks.    

 

How are extended-stay hotels doing during COVID-19?  

 

According to a recent national report, extended-stay hotels experienced the smallest RevPAR (revenue per available room) decline since COVID-19 hit in March. Extended-stay hotels maintained 54% occupancy in June, compared to all hotels’ average occupancy at 42.2%. The economy extended-hotel segment even reported a 75.4% occupancy, higher than any other category by more than 20 percentage points. 

 

Another report released by STR in June, a leading data analytics provider for the lodging industry, also reported a similar trend. 

 


Lower costs to build and operate an extended-stay hotel

 

Besides its high occupancy, extended-stay hotels can be built and operated at a lower price as well. For example, 

 

  • According to a newly-released cost survey in hotel development, the median cost per room for limited-service and midscale extended-stay hotels (e.g., Home2 Suites by Hilton) is in the mid-$130,000s. The median cost per room for upscale extended-stay hotels (e.g., Residence Inn by Marriott and Homewood Suites by Hilton) is $184,000. By comparison, the median cost per room for select-service upscale hotels (e.g., Courtyard by Marriott and Hyatt Place) is $204,000. 
  • When people stay for a longer period (usually the case for extended-stay products), a hotel can hire fewer front desk staff to perform check-in and check-out tasks, regardless if more travelers opting for mobile check-in and check-out 
  • A hotel may also hire fewer housekeepers because there is no need to change the linens every day for stay-over guests. 
  • Fewer requests from the “regulars” for customer service often means lower labor costs and lower variable costs. 

 

More extended-stay hotel brands and properties are entering the market

 

Extended-stay hotels definitely appeal to hotel developers. There were 525,952 extended-stay hotel rooms in the market as of mid-2020, an increase of 8.2% from last year. According to the American Hotel & Lodging Association, there are over 54,200 hotels with five million guestrooms in the U.S. Approximately one in 10 guestrooms in the market is at an extended-stay hotel. 

 

A few weeks ago, Red Lion Hospitality, the owner of such brands as Americas Best Value Inn, Knights Inn, and Red Lion Hotels, announced that it would reposition its GuestHouse International chain as GuestHouse Extended Stay at an upper-economy price. 

 

Aimbridge Hospitality, a hotel management company, also added 16 Extended Stay America properties recently to its portfolio, representing 1,775 extended-stay hotel rooms. 

 

Concerns about the growth of the extended-stay segment? 

 

The extended-stay hotels seem to appeal to both travelers and investors. As long as the demand can sustain its growth, there is probably not a big concern. What do you think? 

 

If the demand for extended-stay hotels continues to grow, is it time for the existing non-extended-stay hotels to consider converting some of their guestrooms for long-term-stay travelers? Any suggestions? 


Note: This viewpoint is also published on MultiBriefs.com. The picture was downloaded from the website of Residence Inn Miami Sunny Isles Beach.

Comments

  1. I think it is a big concern in different ways, but affecting all that is hospitality. Because travelers and other people who require a place like extended-stay hotels it will affect everything but hopefully not by too much or for too long. Theses type of customers will not dine out as often or as long because of the virus and to save money, hotels would also no longer gain income from the Food & Beverage department. Then the local stores will have an increase of customers buying supplies, food, water and other necessities. Then there are the effects of people staying at extended hotels longer then expected, sure income will continue put hotels can't accommodate for everyone who needs one as well when the virus dies down they might lose income because customers will no longer need the extended stay. I think hotels should consider having extended stays but altering a hotel can put one at risk especially if they aren't a major company. If the hotel can I would say have some floors as extended stays and expand them by connecting two rooms together and having one as the kitchen/dinning room or make each room like dorm rooms so the alterations can be undone when the virus dies down.

    HRT 3500.02 Isaac Magana

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  2. It is so fascinating to see how this pocket of hotels is now finding its time to shine in the middle of a pandemic. I wouldn't have thought extended stay hotels would be where stay-at-home workers would find solace in. I also think that for essential workers (especially doctors) who cannot go back home due to fear of exposing their loved ones to COVID, extended stay hotels are a good affordable long term option.

    ReplyDelete
  3. Extended stay hotels are a newer segment in the lodging industry that offer guests the experience of feeling at home, while they're away for longer periods of time. Since the Covid-19 pandemic, this segment of lodging has been an appropriate option for people staying away from home, while providing contactless services and avoiding unnecessary human interactions. Extended stay hotels nowadays usually feature a full-service kitchen or kitchenette. Another benefit to staying in one of these guest rooms is that hotel chains have enhanced cleaning standards that ensure that the guests have a cleanly stay. Lastly, staying in a hotel means that guests will also have access to other hotel facilities, including conference rooms, gyms, and meeting rooms, that all follow social distancing protocols. Extended stay hotels are a great lodging option for travelers who have to work-from-home.

    Vienna Tan
    HRT 3500 Section 02

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  4. It seems that the extended-stay segment will continue to thrive, even during this time where other segments of the hospitality industry are experiencing a decline. Individuals and families are looking to get out of the house safely, and extended-stay hotels offer a good way to do that. I believe that non-extended-stay hotels should follow the trend and try offering extended-stays for guests as it could help them boost occupancy. Although it might cost them more upfront to convert rooms and install new amenities, the investment could be worth it. Guests are showing companies where the demand is, and companies should cater to their demands.

    Anna Liang HRT3500 Section#1

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    Replies
    1. I certainly agree with Anna that the extended-stay segment will continue to thrive especially since covid-19 is still an issue and people need a place to stay while either them or their family are quarantining themselves for two weeks and extended stay is the perfect solution to that. This segment of lodging provide a comfortable and home-like place for the guests like having a kitchen where they can cook and store food while having a place to rest. Non-extended stay hotels should follow the trend by remodeling some of their rooms to extended stay rooms that way they can have more options for the guests; as anna says, the investment is worth it. Some relatives of mine caught the virus from their relative so they must quarantine themselves. In the first place, their relative didn't properly quarantine themselves so having extended stay hotels rooms out there and as an option would have definitely helped prevent the spread.

      Tiffany Tran
      HRT 3500-01

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  5. Ellyse Kapicki HRT 3500.01November 16, 2020 at 10:26 AM

    I think home-sharing facilities, extended-stay hotels, and Airbnb are all great options during COVID-19. For example, when renting an Airbnb guests usually have the whole place to themselves and eliminates the spread of COVID-19. This option also makes the guests feel safer. In addition, home-sharing facilities, extended-stay hotels, and Airbnb usually have kitchens or kitchenettes that allow the guest to stay and eat. This also reduces the chance of coming in contact with someone who may have COVID-19. Airbnb locations are doing so well during this time and I think they will continue to do well. Due to COVID popular hotel chains have not been peoples go to option. They have turned elsewhere because not only is it cheaper it reduces contact with others that may have COVID-19. I have never been to an Airbnb but even before reading this post I coincidently was recently looking into and considering staying at one due to the fact it would be more COVID-19 safe then a normal hotel. I think the increase of stay at these places will not die down too much after COVID-19 due to the fact that they got their name out and that people may have never tried these options/places before and end up liking them more. In the meantime, I do think it would be a good idea for existing non-extended-stay hotels to consider converting some of their guest rooms for long-term-stay travelers.
    WORDS: 235

    Ellyse Kapicki HRT 3500 Section 01

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    Replies
    1. Working from home has become the new "normal". For some companies, it is easier to adapt but as for others such as the hospitality industry, there are some difficulties. Due to COVID-19, traveling has not be busy and as the days go by, cases are going up therefore making people scared to leave their home. In any industry but especially the hospitality industry, human contact and interaction is important therefore hotels are wondering how to do so but also making guests feel safe. It is no surprise that the revenue has gone down and employees are being laid off because in an industry that is always on the go and busy, how can you adapt to working from home? Larger Hotels are falling but facilities that are more "isolated" such as an AirBnB or Extended-Stay Hotels are rising. Those companies will benefit from this pandemic because the main goal is to make guests feel safe and although working from home may be the solution for other companies, the hospitality industry is not one of them.

      Word count: 175
      HRT 3500 Section 1 Amberly Recendez

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  6. Sean Li HRT 3500.02November 16, 2020 at 1:06 PM

    Now this is an interesting example when investors say when you are investing, you should always diversify your money. I am glad that not all hospitality industry businesses are damaged by this Covid-19 pandemic. Extended-stay hotels are always there, but they haven't shined their brightest until recently. Due to the pandemic, people are more aware of their surroundings, things they touched and people that they contacted with. More and more people are limiting their activities from outdoors to indoors, that is why a hotel with a fully-equipped kitchen in each room is much more preferable than a single room with no kitchen at all. Hotels are aware of this situation and they are taking action to adapt to it. Not only are they making more rooms available to extended-stay style, they are also implementing robots technologies into their industry service to minimize person-to-person contact and to maximize their profit gains. Interestingly to say, extended-stay hotels and hotels with robots services are becoming the new trends for the younger generations.

    ReplyDelete

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