Extended-stay hotels staying the course

Extended-stay hotels continued to perform very well in May, according to the U.S. Extended-Stay Hotels Bulletin: May 2022 from The Highland Group. However, all recovery indices compared to 2019 were lower than in April. After accelerating each month in Q1, ADR growth moderated in April and again in May, but it remains considerably higher than any other period before 2021.

Economy extended-stay hotels continue leading the RevPAR recovery compared to 2019. However, demand for the hotel industry’s most price-sensitive segment declined 1.3% compared to May 2021. This was the second consecutive month demand has declined, perhaps in response to strong increases in ADR over several months.

The 1.9% increase in extended-stay room supply in May is the second successive month supply growth was below 2% since 2013 (excluding some of 2020 which was impacted by temporary closings of some hotels) and the eighth consecutive month of 4% or lower supply growth. May’s supply change further indicates that extended-stay hotel supply increases should be well below pre-pandemic levels during the near term.

The overall hotel industry lost far more revenue than extended-stay hotels in 2020 and 2021, so it is now recovering revenue more quickly. STR reports all hotel room revenue was up 43% in May 2022 compared to one year ago.

​​In May, midprice and upscale extended-stay segments reported their lowest monthly change in demand this year. Although the economy extended-stay segment reported a decline in demand in May, the fall was slightly lower than in April. Except for February 2021, which was impacted negatively by the leap year in 2020, economy extended-stay hotels reported only the second monthly fall in demand in 23 consecutive months.

Overall hotel occupancy gained more than extended-stay hotels in May compared to one year ago, decreasing extended-stay hotels’ occupancy premium to 12 percentage points. However, the premium remains within its long-term average range.

Midprice and upscale extended-stay hotels continued to lead the ADR recovery in May. ADR recovery indices were lower than in April which is consistent with the decelerating gains in ADR for the overall hotel industry. For the second successive month, upscale extended-stay hotels more than fully regained ADR back to its nominal 2019 values.

The midprice and upscale segments continued posting the strongest RevPAR growth over the last year. After fully recovering monthly RevPAR back to 2019 in April, the upscale extended-stay segment’s RevPAR recovery index slipped back below 100% in May. Because the overall hotel industry lost far more RevPAR than extended-stay hotels in 2020, its RevPAR growth in May 2022 relative to May 2021 was considerably greater.

“A relatively high concentration of rooms in urban submarkets and above-average supply growth are key factors hindering full RevPAR recovery for upscale extended-stay hotels,” said Mark Skinner, partner, The Highland Group.