Extended stay hotels set new fourth quarter records for supply, demand, average daily rate (ADR), revenue per available room (RevPAR) and room revenues in 2023, according to a report from The Highland Group, a consultancy. However, as with the overall hotel industry, occupancy fell as ADR and RevPAR growth slowed throughout the year, resulting in the smallest fourth quarter increase in extended stay hotel RevPAR since 2019, excluding contractionary periods.

Mark Skinner, partner, said that with interest rates and construction costs likely to remain relatively high, the risk of extended stay hotel oversupply nationally is very low in the near term, despite the launch of several new brands.
Although extended stay hotel supply growth increased incrementally last year over 2022, it remains very low. The last time supply growth was consistently near its current level was from the fourth quarter of 2010 through the third quarter of 2014.

Most forecasts for the hotel industry project 3% to 5% gains in RevPAR in 2024, according to the report, and the correlation between overall hotel industry and extended stay RevPAR trends is very high. Consequently, extended stay hotels should set more new performance records during the near term, according to the report.

Fourth quarter highlights for extended stay hotels included: lowest occupancy in 10 years; second lowest net gain in new rooms in 10 years; record high revenues for all segments; room revenues up 3.3% over last year; and a RevPAR increase of 1% over the fourth quarter of 2022.

Extended stay hotels’ occupancy premium above the overall hotel industry averaged about 11% from 2016 through 2019, which is typical over the last 25 years. The premium tends to rise during contractionary periods, and it widened substantially during the pandemic-induced downturn, peaking at 21% in the fourth quarter of 2020. At 12.3 percentage points in the fourth quarter of 2023, the premium was the same as for the same period in 2022 and about one point higher than in the fourth quarters from 2016 through 2019.

Image: Marriott