Report: U.S. extended-stay room supply growth subdued in 2022

RevPAR growth in 2022 strongly favored ADR as opposed to occupancy gains in 2021

extended-stay hotel
The extended-stay hotel room supply in the 100 largest U.S. metropolitan statistical areas grew 2.5 percent in 2022 over the previous year, its smallest increase in several years, according to a report from The Highland Group. The largest supply growth is expected in smaller markets.

EXTENDED-STAY HOTEL room supply in the 100 largest metropolitan statistical areas in the U.S. grew 2.5 percent in 2022 compared to 2021, its smallest increase in several years, according to a new report from The Highland Group. The survey, which researched supply, demand, revenues and new construction of extended-stay hotels, said the outcome in 2022 was about half the net supply gain reported in 2021.

According to the report, the lengthening hotel development timeline, fewer construction starts, disenfranchising hotels that no longer meet brand standards, conversions to apartments and some municipalities acquiring extended-stay hotels for housing have resulted in the muted growth.

While there was a sharp decline in reported extended-stay rooms under construction last year compared to 2021, construction starts increased 6 percent over the last 12 months. “However, they remain low compared to the pre-pandemic period, the report noted.

RevPAR growth in 2022 strongly favored ADR as opposed to occupancy gains in 2021. “Consequently, more than 40 MSAs reported lower average occupancy in 2022 than during the previous year. However, only a dozen MSAs have not yet recovered RevPAR back to its nominal 2019 value compared to about half the MSAs last year,” it showed.

Led by San Jose with 65 percent and Seattle with 53 percent, markets with the strongest RevPAR growth in 2022 tended to be ones hit hardest by the pandemic, the report said. Also, MSAs in Florida reported some of the highest RevPAR growths.

However, the near-term outlook for extended-stay hotels in the 100 largest markets is very good, the report said.

RevPAR 2022 compared to 2021 grew at least 20 percent in more than 40 MSAs, while 14 markets achieved larger RevPAR gains than the 29 percent national average STR reported for all hotels.

“Collectively, supply growth across the 100 MSAs in 2023 should be among the lowest for several years,” the report said. “A quarter of MSAs expect supply growth of 5 percent or less and more than 40 MSAs forecast no supply growth during the near term.”

Almost three quarters of extended-stay rooms are in the 100 largest MSAs, The Highland Group said.

“Extended-stay rooms account for greater than 10 percent of total room supply in 77 MSAs and in 31 MSAs extended-stay rooms are more than 15 percent of all hotel rooms,” the report said. “San Jose, Charleston, SC and Raleigh have the largest share of extended-stay rooms. The most underrepresented MSAs are Myrtle Beach, Sarasota-Bradenton and Santa Rosa.”

Just over 10,500 extended-stay rooms were added to the 100 largest MSAs in 2022, representing a 2.5 percent increase, according to the report.

“Extended-stay hotel companies reported 18,228 extended-stay hotel rooms under construction in the 100 largest MSAs at the end of 2022 which was a 6 percent increase on the number reported one year ago,” the report said. “If all the rooms under construction open before the end of the year and no existing rooms close, the absolute supply increase in 2023 will be approximately 4 percent. The actual increase is likely to be significantly lower.”

According to the new report, extended-stay room supply is forecast to increase by 10 percent or more in 16 MSAs in 2023. Smaller markets saw the largest projected increases, however Riverside San Bernardino, California, is the only large hotel market with a greater than 10 percent expected increase in extended-stay supply in 2023.

The report said that the extended-stay hotel occupancy was lower in 2022 compared to 2019 in about 60 MSAs, largely because of strong ADR growth over the last two years.

“Smaller markets lead the occupancy recovery indices. Strong ADR and supply growth were the main reasons behind MSAs reporting the lowest occupancy recovery indices in 2022,” the report said.

Excluding Las Vegas, few large hotel markets featured among those with the highest ADR recovery indices.

“Myrtle Beach topped the list for the second successive year with ADR almost 50 percent higher in 2022 compared to 2019. While its recovery has been strong, as with some other smaller markets, new higher rated extended-stay supply also lifted ADR,” the Highland Group said.

Also according to the report, no MSAs reported lower ADR in 2022 compared to 2021 and only seven had not yet restored ADR back to its nominal 2019 value.

“Two of them, San Jose and San Francisco, had the lowest ADR recovery indices compared to 2019 for the second year in a row,” it said.

A dozen MSAs had not recovered RevPAR back to its nominal 2019 level in 2022 but some of them reported the strongest RevPAR growth over the last year.

“Larger, urban centered markets featured heavily among those reporting the largest gains in RevPAR in 2022 compared to 2021,” the Highland Group said.

In November, all extended-stay segments posted RevPAR gains compared to last year. The 1.2 percent increase in extended-stay room supply that month was the eighth successive month supply growth was 2 percent or lower and marks 14 months of 4 percent or lower supply growth, well below the long-term average.