The extended-stay hotel sector emerged as an industry leader throughout 2024, demonstrating stronger pricing power than conventional hotels. Analysis of inflation-adjusted average daily rates, or ADR, shows that while traditional hotel rates lagged 2019 benchmarks, extended-stay properties maintained higher rates overall. This performance gap highlights the sector’s ability to benefit from shifting market demand, driving continued growth throughout the year.
In contrast, ADR for conventional hotels largely fell below 2019 indexed rates. Conventional hotel operations face mounting pressures from highly publicized challenges around labor, wage increases, rising insurance costs and increased property tax bills in some cities. These factors — combined with shifting travel patterns, including lower inbound international travel, higher outbound international travel, price sensitivities and more selective domestic travel — continue to affect operators’ pricing power to raise rates.
Additional demand drivers for extended-stay properties last year included weather-related events and large infrastructure projects. In 2024, there were 27 weather-related natural disasters in the summer and fall months, which required many to seek short-term accommodations, especially in the southern portions of the U.S. where hurricanes and tornados made their mark.
Recent federal legislation, including the 2021 Infrastructure Act, representing $1 trillion in federal spending, and the CHIPS Act in 2022, continues to support the sector’s growing demand, as construction crews are required to support the initiatives while overhauling major American infrastructure and supporting the growing semiconductor industry.
Operationally, extended-stay hotels don’t require a large staff, which lowers labor costs. They also typically include fewer amenities, keeping costs down. Stable rate pricing and longer stays of up to 30 days or more also add to the segment’s stability by not requiring nightly rate adjustments.
Article Courtesy of CoStar