In Remote Work Era, Hotel Operators Make a Bet on Longer Stays

For 35 years, Tanna Pearman has been a business traveler around the country, staying in luxury hotels and roadside motels. Her least favorite things are boxy convention hotels with cavernous lobbies where it’s easy to get lost. But at the top of her list is extended stay accommodation.

Pearman, a broker at Las Vegas-based conference planning firm Meetings Made Easy, said extended-stay hotels with rooms large enough to work and relax easily combine business calls with sightseeing tours.

“It feels more like a living space than just a bedroom,” she said.

These days, Mr. Pearman has a lot of friends. Interest in extended-stay hotels is growing, partly due to an increase in remote work, as well as an increasing number of workers traveling from site to site for infrastructure investment in projects such as road construction and green energy.

And because travelers tend to stay longer and need less cleaning, extended-stay hotels, especially those focused on cost-conscious travelers, are cheaper to build and operate than full-service hotels. Recognizing the high margins of these highway-side accommodations, hotel companies are looking at accommodations with new eyes, expanding their portfolios and adding new brands.

Hilton Worldwide, Hyatt Hotels and Marriott International introduced long-stay brands this year, but some new brands don’t yet have official names. Last year, Best Western International and Wyndham Hotels & Resorts announced new brands in the category, following Choice Hotels, which launched a new extended stay chain in 2020.

“It’s hot,” said Jan Freitag, national director of hospitality market analysis at property analytics firm Koster.

For hoteliers, economical construction is a top priority. “The way the design is built is very efficient,” said Isaac Lake, brand lead for Project H3 by Hilton, a pseudonym for the company’s new extended-stay hotel due to open in the second half of next year.

For example, the rooms in Project H3 were designed so that only one fire sprinkler was needed in the bathroom, light fixtures could be plugged behind the bed to minimize wires, and one type of vinyl floor tile was used instead of multiple floor surfaces, he said.

Without palatial lobbies, full-service restaurants, and other large public spaces, the square footage of an extended-stay property could generate far more revenue, despite the larger rooms. The longer the stay, the lower the operating costs. Housekeeping is typically done weekly instead of daily, and the reduction in daily check-ins and check-outs also reduces the number of front desk employees required.

Labor costs at full-service hotels rose about 24% in 2022 from the previous year, while long-stay hotel costs rose just under 12% in 2022, according to research by hotel management software maker Actable.

“It’s mostly housework. After all, a lot of the work is done there,” said Jim Chu, chief growth officer at Hyatt. Earlier this year, Hyatt announced plans for a brand called Hyatt Studios. The company said it plans to open more than 100 of these hotels next year.

Cie D’Esta, an equity analyst at CFRA Research, said changes in the way people work are a big factor supporting this trend. Employees who can carry their laptops and work from anywhere are fueling an increase in hybrid business-leisure travel.

Hotel executives are moving rapidly to take advantage of the shift to remote work. “Moving out of the office allows people to work elsewhere,” said Noah Silverman, Marriott’s head of global development for the U.S. and Canada. “This is a broader dynamic driving more business into extended stay hotels.”

Marriott announced in June that it was developing a new extended stay brand under the tentative name of Project MidX Studios. Company officials said they expect to begin booking guests at the first properties by the end of 2024 or early 2025.

Desta said extended-stay hotels could also appeal to leisure travelers looking for cheaper accommodation. Inflation is easing, but many Americans are still adjusting to higher prices for airline tickets and restaurant meals. They’re looking for ways to save money, whether it’s incorporating their vacation into a business trip or eating in their hotel room. (Long-stay hotels usually have kitchens with full-size refrigerators and stovetops.)

Paul Hensley said he travels from his home in the Nashville area almost every week to work for an e-commerce manufacturer. A hotel room with a kitchen not only saves you money, but it also benefits your waistline, he said.

Hensley, 57, said, “I like to eat a little more healthily when I’m traveling. The fact that I have a whole kitchen, especially in this economy, can make traveling cheaper because I can buy food instead of eating out.”

Home-sharing platforms such as Airbnb and Vrbo also offer accommodations with kitchens and spread out rooms, but industry experts say they cater to different markets.

“We believe Airbnb customers are looking for truly unique experiences,” said Mitt Shah, chief executive of Noble Investment Group, a real estate investment management firm that specializes in the travel and hospitality sector.

However, customers who choose home sharing can face unexpected expenses, such as high cleaning fees and properties that are not advertised. Shah said hotel companies are trying to prevent this by imposing brand standards.

“This provides a consistent standard of hospitality quality and gives travelers peace of mind,” he said. “They know what they’re getting,” he added.

Despite the wave of brand announcements, hotel investors expressed confidence the market won’t be saturated anytime soon.

“The fact that there are potential new entrants to the space speaks volumes to the fact that this is a good underlying business and an attractive segment,” said Nadeem Megzi, head of Americas real estate at private equity firm Blackstone.

Blackstone has partnered with Starwood Capital to acquire hotel operator Extended Stay America for about $6 billion in 2021, betting on a post-pandemic travel recovery. Last year, two investment groups invested again in this hotel category, buying 111 WoodSpring Suites properties for about $1.5 billion.

But it’s not just the return to travel norms that is expected to grow. Industry experts suggest that long-stay occupancy could increase over the years due to the impact of investments in roads, bridges, manufacturing and green energy.

“There are also longer-term tailwinds, such as US government spending on infrastructure,” said CFRA analyst Desta. “We hope this will also drive long-term demand for extended stays.”

Over the past two years, Congress has passed economic-boosting bills such as the Infrastructure Investment and Jobs Act, the Inflation Control Act, and the CHIPS and Science Act, which hotel executives predict will help fill extended-stay rooms across the country with workers for weeks or even months at a time.

“More than half of the newly negotiated corporate business deals signed by our team in the last 12 months were infrastructure-related,” said Jeff Barlotti, president and chief executive officer of Wyndham. The hotel operator announced the Echo Suites brand last year, saying the first properties will open by the end of the year as planned.

“This is years of construction and contractor workers need the rooms, which is really driving demand,” Barrotti said.

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