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Economy Extended Stay Is the Strongest of the Weak U.S. Hotel Sector in March

Economy Extended Stay Is the Strongest of the Weak U.S. Hotel Sector in March
Economy Extended Stay Is the Strongest of the Weak U.S. Hotel Sector in March

Despite the extraordinary drop in travel demand due to coronavirus, one sector performed markedly better than the rest last month during the ongoing public health crisis.

U.S. economy extended stay hotels held a nearly 72 percent occupancy rate compared to the 42 percent hotel industry average, according to STR data sampling the first 28 days of March. Revenue per available room, or RevPAR — the industry’s leading performance metric — declined by just over 14 percent at economy extended stay hotels compared to a nearly 49 percent drop for the industry as a whole.

“To be sort of flip, when in doubt: extended stay,” STR Senior Vice President of Lodging Insights Jan Freitag said. “It’s a sector within the industry that has a consistent base of performance.” The larger players in this space include Extended Stay and HomeTowne Studios.

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By comparison, luxury hotel occupancy was at nearly 34 percent for the 28-day period, Freitag added. While some hotels are being considered for self-quarantine and healthcare uses, the economy extended stay sector’s existing consumer base keeps performance strong, even during coronavirus.

“There is a significant residential guest component in economy extended stay hotels,” said Mark Skinner, a partner at Atlanta-based hotel advisory firm the Highland Group. “The second reason is that the construction industry is a very large demand generator for those hotels.”

Residents aren’t likely to move away due to coronavirus, and construction work across the country has mainly been deemed an essential service despite shelter-in-place orders. The continued demand factored into the Highland Group’s own outlook, which only expects a 10 percent decline in economy extended stay occupancy and a less than 5 percent drop in average daily rates in March.

“I think the economy extended stay segment in particular will suffer less of a RevPAR decline relative to the rest of the hotel industry for the duration of this crisis,” Skinner said. “But as the price of extended stay hotels go up, they will more closely resemble the rest of the hotel industry.”

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