Summary:
- Extended-stay hotels continue to attract investors, though oversupply concerns are rising.
- May marked 44 straight months of supply growth at 4 percent or less, with annual growth below the 4.9 percent long-term average.
- Despite strong interest, the segment has not seen a supply surge.
EXTENDED-STAY HOTELS remain of interest to investors, though conversion activity is expected to decline and 2025 supply growth will stay below the long-term average, according to The Highland Group. Oversupply concerns are rising amid increased brand launches.
May marked 44 consecutive months of supply growth at 4 percent or less, with annual growth over the past three years ranging from 1.8 percent to 3.1 percent —all below the long-term average of 4.9 percent, according to The Highland Group.
Mark Skinner, principal at the Highland Group, said on a recent CoStar podcast that supply and demand in the extended-stay segment have seen muted growth, with performance tracking broader U.S. hotel trends.
“Extended-stay supply and demand are both rising, but well below their long-term average of about 5 percent over the past 25 years,” he said. “In the trailing 12 months, supply grew 2.9 percent and demand 2.5 percent. In each of the past five months, supply outpaced demand, lowering occupancy. In the eight months before that, the reverse was true—in seven of them, occupancy rose.”
Skinner said the correlation between the extended-stay and broader hotel industries is currently very high, a shift from the COVID-19 period, when extended stay, especially in lower-tier segments, outperformed.
“Despite continued interest from brands and investors, the industry hasn't seen a surge in supply,” he said. “It's very difficult to build any hotel with today's interest rates and construction costs, and that includes extended stay.”
Performance remains strong
Hotel companies report continued performance strength in the segment.
Brian Quinn, chief development officer at Sonesta, said extended stay “continues to be a juggernaut,” noting strong results across the company’s Simply Suites and ES Suites brands.
“When the economy wobbles, extended stay often benefits. People scale down, and this segment holds steady,” Quinn said. “The economy segment had a strong run and has recently come back to earth, but there’s still room for growth.”
Zack Gharib, president of Red Roof, said extended stay remains a bright spot, with lenders showing more interest due to strong cash flow.
“Extended stay is hot,” he said. “We’ll likely see more lending activity there than in traditional segments.”
Investor momentum builds
“Extended stay’s lean model and strong margins are drawing new investor interest, especially with ongoing labor challenges,” said David Perrin, Hunter Hotel Advisors’ senior vice president during a recent panel. “Quick-turnaround conversions—some in three to four months—and new builds opening in about 12 months are also appealing.”
Perrin also noted growing interest from non-hotel investors, particularly from the construction, retail and multifamily sectors.
“Extended-stay hotel companies have simplified construction to the point where investors can easily replicate it,” he said during an April roundtable hosted by Hotel Investment Today. “They can jump in and understand the model. Plus, deal sizes range from $2 million to $20 million, attracting demand across the capital stack.”
In May, the Highland Group reported that economy, midprice and upscale extended-stay segments outperformed their respective hotel classes in first-quarter 2025 RevPAR growth versus 2024.
