Dive Brief:
- The ongoing evolution of the select service and extended stay sector has driven its investment appeal to unprecedented levels, fueled by growing consumer demand and increased geographical distribution within the top 25 U.S. markets, according to JLL’s U.S. Select-Service and Extended-Stay Hotel Trends and Outlook 2024.
- Between 1988 and September 2023, the hotel room supply in the select service and extended stay hotel sector has increased by 190.3% – or 60 percentage points greater than full-service hotel room supply growth.
- With lodging demand for select service and extended stay hotels continuing to surge thanks to remote workers and “bleisure” travelers, the sector is poised for further long-term growth, which JLL expects will feed investment appetite in 2024.
Dive Insight:
To meet the needs of post-pandemic consumers who are looking for the comforts of home and flexible working spaces, the select service and extended stay hotel sectors have basically converged into one, according to JLL’s report.
Select service properties now incorporate extended stay amenities, including in-room kitchenettes and flexible workspaces, while extended stay hotels have added business centers. The two sectors as a whole have also expanded beyond the usual secondary and tertiary markets into primary, urban and resort locations.
The report states that between 2020 and the third quarter of 2023, the number of first-time buyers of select service and extended stay hotels hit a record high of 855 total.
This upward trend is expected to continue through 2024, the report states: “With the average yield for the combined select-service and extended-stay sector achieving a 10-year high through the first nine months of 2023 and average deal size at a record low of $16 million, expect even more opportunity for investors over the long-term.”
Through September 2023, U.S. select service and extended stay hotels recorded a 41.3% gross operating profit margin, surpassing full-service hotels by 6.1 percentage points. Plus, the sector has proven to weather economic downturns better than others due to the hotels’ streamlined operations, reduced labor and operational costs. This “reinforces [the sector’s] resilience and attractiveness to investors,” the report notes.
And because their consumer base has grown, select service and extended stay hotels have increased their market share within urban, resort and the U.S.’s top 25 markets. Between September 2013 and 2023, total hotel room supply in the top 25 markets grew by 67.2%, whereas it only grew by 7.1% in markets outside of the top 25, according to JLL.
In recent months, the sector has sprouted a number of new brands, reaching 200 to date with more in the pipeline.
Earlier this week, for instance, Hilton unveiled the name of its new lower midscale extended stay brand: LivSmart Studios. And last month, Hyatt Hotels broke ground on the inaugural location of its Hyatt Studios brand, the company’s first upper midscale extended stay brand in the Americas.
