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Report: Extended-stay hotels see 3.2 percent room supply increase in May

New economy segment construction is 3 percent, down from last year

Report: Extended-stay hotels see 3.2 percent room supply increase in May
U.S. EXTENDED-STAY HOTELS

U.S. EXTENDED STAY HOTELS room supply increased by 3.2 percent in May, slightly above the average monthly rise over the past two years, according to The Highland Group. May marked the 32nd consecutive month with supply growth at 4 percent or less, and the annual supply increase has been under 2 percent for two years.

However, both metrics remain well below the long-term average.


The 12.8 percent increase in economy extended-stay supply, along with smaller gains in mid-price and upscale segments, is primarily due to conversions, the report said. New construction in the economy segment accounts for only about 3 percent of rooms opened compared to a year ago.

Supply change comparisons have been affected by rebranding, moving rooms between segments in our database, de-flagging hotels that no longer meet brand standards, and the sale of some hotels to multi-family apartment companies and municipalities, The Highland Group said. The trend is likely to continue through the first half of 2024, as several older extended-stay hotels are still on the market. However, the full-year increase in total extended-stay supply compared to 2023 will remain well below the long-term average.

Revenue growth

Extended-stay hotels saw a 5.3 percent revenue increase in May, the third monthly gain of 5 percent or more in the last four months, the report said. This was ahead of the 4.9 percent increase reported by STR/CoStar for the overall hotel industry.

Total extended-stay demand rose by 4.3 percent in May, marking positive demand changes in 17 of the last 18 months, Highland Group said. Excluding the leap year boost in February 2024, May's demand increase was the second highest since January 2023, and compared favorably with the 2.5 percent growth reported by STR/CoStar for the overall hotel industry.

Extended-stay hotel occupancy growth in May marked the second consecutive monthly increase following over a year of consistent declines. However, it was below the 1.5 percent gain reported by STR/CoStar for the overall hotel industry. Extended-stay hotel occupancy in May was 11.5 percentage points higher than the total hotel industry, aligning with the historical long-term average occupancy premium.

After monthly declines in February and March, the first in three years, extended-stay hotel ADR increased again in May. The economy segment's slight monthly decline marked its fifth consecutive drop, mirroring the fall reported by STR/CoStar for all economy class hotels. In May, only mid-price extended-stay hotel ADR outperformed its corresponding class across all hotels.

In April, extended-stay hotels reversed a four-month trend of declining monthly RevPar and built on that in May with a 2.1 percent gain, although this increase was lower than the 3.9 percent growth estimated by STR/CoStar for all hotels. Economy extended-stay hotels have experienced consistent monthly RevPar declines for over a year. However, May's 0.5 percent contraction was the second lowest in this period and slightly less than the 0.6 percent fall for all economy class hotels reported by STR/CoStar.

The Highland Group reported that U.S. extended-stay hotels experienced positive growth in April after a challenging first quarter. Monthly room revenue reached a year-high, demand saw its highest growth in 16 months, and both ADR and RevPar increased after two and four months of decline, respectively.

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