Extended-stay hotels in good health in April after a difficult first quarter

Extended-stay hotels in the United States posted positive growth in April after a difficult first quarter, according to The Highland Group. Monthly room revenue growth was the highest in nearly a year, demand saw its largest increase in 16 months, and ADR and RevPAR turned positive after two and four months of declines, respectively .

“The performance of extended stay hotels in April reestablished the segment’s long-term trend of increasing market share in terms of total hotel supply, demand and room revenue,” said Mark Skinner, partner at The Highland Group.

The supply of extended-stay rooms increased 2.8% in April, slightly above the average monthly increase over the past two years, according to the report. However, April marked 31 consecutive months of supply growth of 4 percent or less, with an annual supply change of less than 2 percent for two years, both indicators well below the long-term average.

The Highland Group reported a 13.8 percent increase in extended-stay economy room supply and a slight gain in the mid-price room segment, driven primarily by conversions. New construction in the economy segment is estimated at around 3 percent of rooms opened compared to a year ago.

Supply evolution comparisons were affected by rebranding which moves rooms between segments of The Highland’s database, deflagging hotels that no longer meet brand standards and hotel sales to multi-family apartment companies and municipalities.

At the same time, The Highland Group expects this trend to continue at least through the first half of 2024, as several older extended-stay hotels are still on the market. However, the annual increase in total extended stay supply compared to 2023 will remain well below the long-term average.

Extended-stay hotel revenue rebounded strongly in April with a 5.5% gain, the largest monthly increase since May 2023, according to the report. This exceeds the 3.1 percent increase reported by STR/CoStar for the entire hotel sector.

Total demand for extended stays increased 4.5 percent in April, marking positive growth in 16 of the past 17 months, The Highland Group reported. Excluding the leap year increase in February 2024, the increase in demand in April was the strongest since January 2023 and exceeded the 2.3% growth reported by STR/CoStar for the entire hotel sector.

Key recovery and growth indicators

April saw the first monthly increase in extended-stay hotel occupancy in more than a year, surpassing the overall industry gain of 1.3 percent reported by STR/CoStar, said The Highland Group. Extended-stay hotel occupancy was 11.6 percentage points higher than the overall hotel industry, matching the long-term historical average occupancy premium.

After two consecutive monthly declines – the first in three years – extended-stay hotel ADR increased in April, with the economy segment’s partial decline the smallest since January, the report said. Compared to similar hotel classes, mid-priced economy and extended stay ADRs performed better in April. However, the 1.4 percent gain in the upscale extended-stay segment lags slightly behind the 1.6 percent increase STR/CoStar reported for all upscale hotels.

Extended-stay hotels saw a reversal of the four-month downward trend in monthly RevPAR, with a 2.6 percent gain in April, surpassing the 2 percent increase estimated by STR/CoStar for all hotels during the same period, The Highland Group said. The steady monthly decline in RevPAR at budget extended-stay hotels began a year ago.

However, the 0.8 percent contraction recorded in April is the second smallest over this period, significantly lower than the 3.6 percent decline reported by STR/CoStar for all economy class hotels.

In early May, The Highland Group reported that U.S. extended-stay hotels faced a RevPAR decline of 1.6% in the first quarter of 2024, despite a 1.5% increase in revenue. Demand increased by 1.7 percent, contrasting with a 2.8 percent decline in total hotel demand excluding the upscale and luxury segments.