Five of the extended stay hotel markets in the 100 largest Metropolitan Statistical Areas (MSAs) in the US (as defined by STR/CoStar) still had not reverted to pre-pandemic levels by the end of last year, according to a report from The Highland Group, a consultancy.
The worst impacted, San Francisco and San Jose, could not build on the strong revenue per available room (RevPAR) growth achieved in 2022, so in 2023 their reported respective extended stay hotel RevPARs were still 16% and 26% below their 2019 nominal values. Other MSAs that did not fully recover were Portland, Oregon/ Vancouver, Washington; Santa Rosa, California; and Minneapolis-St. Paul.
Conversely, in 2023, extended stay hotels in more than a third of the nation’s largest hotel markets achieved nominal RevPAR that was 20% or greater than in 2019.
Mark Skinner, partner with The Highland Group, said that with increasing demand and low supply growth forecasted, “the near-term outlook for extended stay hotels is very good in many MSAs.”
In the 100 largest MSAs, extended stay room supply gained 3% in 2023 over 2022. This was an uptick over last year but still one of the smallest increases in several years. More than 18,000 extended stay rooms were reported as under construction at the end of 2022; however, the net change in rooms open by the end of 2023 was less than 13,000, reflecting the lengthening hotel development timeline, disenfranchising hotels that no longer meet brand standards, conversions to apartments and some municipalities acquiring extended stay hotels for housing.
RevPAR growth in 2023 favored average daily rate (ADR) as occupancy declined in two-thirds of MSAs but more than 80 markets reported higher extended stay hotel RevPAR compared with 2022. Like last year, some of the markets hardest hit by the pandemic — including New York, Boston and Washington DC — reported among the strongest gains in RevPAR in 2023.
The near-term outlook for extended stay hotels in the 100 largest markets is very good, according to the report. RevPAR growth in 2023 compared with 2022 was at least 5% in more than one-third of MSAs, and 40 markets achieved larger RevPAR gains than the 4.2% national average for all extended stay hotels. Collectively, supply growth across the 100 MSAs in 2024 should be one of the lowest in several years. Almost one third of MSAs expect supply growth of 5% or less, and more than 40 MSAs forecast no supply growth during the near term.
More than three-quarters of all extended stay rooms are in the 100 largest MSAs. Extended stay rooms account for greater than 10% of total room supply in 79 MSAs, and in 33 MSAs extended stay rooms are 15% or more of all hotel rooms.
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