Compared with traditional hotel segments, the extended-stay
segment performed well throughout the depths of the Covid-19 pandemic, even
though the comparisons are not exact. The type of essential travelers who
remained on the road and some leisure guests who began traveling again a year
ago often desired longer stays, wanted kitchens as many restaurants in and near
hotels had closed or had limited services, and sought extra space for working
or simply spreading out.
Extended Stay America capitalized on its pandemic success
and agreed in March 2021 to be sold for about $6 billion, taking the company
private. Choice Hotels, which now counts four extended-stay brands in its
portfolio, has leaned into the segment, which as of June 30 accounted for 10
percent of the company’s domestic rooms. Its WoodSpring Suites brand reported
occupancy levels at nearly 86 percent and 16 percent revenue-per-available-room
growth during the second quarter of 2021 compared with the same period in 2019.
In development activity for the period, Choice’s franchise contracts for the
segment grew nearly 60 percent.
Economy extended-stay in particular year-to-date through
Aug. 31, 2021, had surpassed its 2019 levels for all three key performance
indicators, according to The Highland Group. The 2021 midscale tier was down
mid-single-digit percentages for each metric—RevPAR, occupancy and average
daily rate—while the upscale extended-stay segment continued to lag, with
occupancy down 9 percent from 2019 levels, ADR off 14.8 percent and RevPAR down
22.5 percent.
As the recovery continues and travelers have become more
comfortable with hotel stays in general, the segment’s growth has tapered, and
its overall performance shows occupancy down 4.3 percent, ADR off 10.9 percent
and a RevPAR decline of 14.7 percent compared with 2019 year-to-date metrics.
Traditional Tier Performance
Looking at the same period for the traditional tiers, the
story is simiI’llar, with lower-priced segments doing better than higher-priced
ones. The economy segment performed the best, with occupancy and RevPAR off
just 2.5 percent each compared with 2019 and ADR essentially fully recovered,
according to STR.
The midscale segment also has shown a strong recovery.
Year-to-date as of Aug. 31, occupancy was at 93.3 percent of 2019 levels, ADR
had increased 1.2 percent, and RevPAR was down just 5.5 percent. BWH Hotel
Group, whose portfolio is about 60 percent midscale and includes the Best
Western brand, has seen RevPAR recover to about 90 percent of 2019 levels
year-to-date, and expects a full recovery in 2022. The company’s ADR has fully
covered, and occupancy is only about six points behind 2019 levels, according
to the company.
The upper-midscale tier has shown a slower but steady
recovery, with year-to-date occupancy levels as of Aug. 31 at nearly 61
percent, off 12 percent from the same period in 2019. ADR recovered to nearly
96 percent of its previous level, while RevPAR was still down about 16 percent
from 2019 levels.
Throughout the pandemic, upscale, upper-upscale and luxury
segments were hit the hardest, not least because those typically cater to
business and corporate group travel, which have been slower to recover than
leisure. Those segments also saw more hotel closures and partial closures.
The exception is for ADR. Rates in the luxury segment have
fully recovered, and as of Aug. 31, had increased 10.6 percent over 2019.
Average upper-upscale and upscale rates still were lower than 2019, but just
8.7 percent and 10.2 percent, respectively. Among the three segments,
upper-upscale lagged the most, with occupancy down 36.4 percent for the period,
and RevPAR off by 41.9 percent.
These three segments are poised for a stronger bounce-back
as business travel begins to pick up steam, and group business on the
books—especially for 2022—has rebounded, with multiple hotel companies
reporting average group rates that meet or exceed those for 2019.
The unknown variable is the return to offices. The hotel
industry had been counting on an autumn return to spur increased demand,
particularly for the upper tiers. But many companies that planned a September
return delayed that by a few months as the delta variant spread and Covid-19
cases rose. Further, in recent weeks, some major companies, such as PwC,
announced they would offer employees full-time remote work. It remains to be
seen how this will affect business travel hotel demand going forward.
Tier Shift in Hotel Bookings
The 2021 BTN hotel survey found that travel buyers reported
shifts in their booking patterns by tiers. Just under 50 percent of buyers
reported no change in the share of bookings since 2019 for the luxury,
upper-upscale, upscale and upper-midscale segments. The remaining half for each
tier, however, showed interesting shifts.
Coinciding with performance metrics, about 41 percent of
buyers reported a lower share of bookings for luxury properties since 2019,
while just more than 10 percent had a higher percentage for this segment, not
surprising considering group business and high-end business travel were nearly
at a standstill during much of the pandemic.
Still, buyers also reported that they have seen a higher
share of bookings for upper-upscale and upscale properties since 2019, at 31
percent and 35 percent, respectively. About 24 percent reported a lower share
of bookings for upper-upscale hotels, and 16 percent reported less for upscale
properties.
Upper-midscale slightly favored a higher booking share, at
28 percent, while about 22 percent of buyers reported a lower share than in
2019. Three in five respondents said there had been no change in midscale
booking shares, while a quarter saw fewer midscale booking shares, and only 16
percent reported an increase. After the luxury segment, economy showed the
highest decrease of share of bookings since 2019, at 33 percent.
In the beginning of the pandemic, much of the essential
travel was at properties in the three- to 3.5-star range rather than the four-
to 4.5-star range, said Goldspring Consulting partner Neil Hammond. But those shifts
have almost recovered, he added. At the same time, pricing pressure drove some
four- to 4.5-star properties down to almost three-star level rates, Hammond
said, making full-service hotels more appealing than select service for the
same price, which would explain the increase in percentage of bookings for the
upper tiers, aside from luxury.
Global travel manager and co-chair of the Global Business
Travel Association accommodations committee Mira Rosenzweig agreed that there
is less tier shift happening now “because service levels are returning,” she
said.
“What I do see is more focus on the experience of the
traveler at the hotel,” she added. “If you are going to a name-brand hotel
where it’s the same and consistent everywhere you go versus do you want a hotel
where you have more of an experience where you can feel like you are in that
city, I think those are the conversations the travel managers are having with
their travelers. It allows the travel manager to focus not so much on how many
stars a hotel has, and more on what does it actually bring in service level,
product and experience.”