Hilton, Marriott Square Off in Extended-Stay Battle

Hilton and Marriott International are preparing to open hotels starting next year under their as-yet-unnamed new brands.
Hilton and Marriott International are preparing to open hotels starting next year under their as-yet-unnamed new brands.

Summary

  • Two hotel companies to launch brands as work, travel habits change

he two biggest U.S. hotel companies are launching new extended-stay brands, a sign that the industry remains bullish on lodging that appeals to guests seeking longer booking periods as work and travel habits evolve.

Hilton and Marriott International are preparing to open hotels starting next year under their as-yet-unnamed new brands. Both companies will be competing for the same type of guests: customers looking to book affordable rooms for 20 nights or longer, executives for the companies said.

Hilton is in negotiations with more than 100 hotel owners for properties under this new flag, Chief Executive Chris Nassetta said. Rooms will include a kitchen with a full-size refrigerator, dishwasher and cooktop. The buildings will have gyms, laundry facilities and a small market with snacks and toiletries available for purchase.

“You have all the things you need to work, sleep, eat," Nassetta said, adding that the new brand will likely be “one of the—if not the—most profitable brands on a pure margin basis that we have."

Marriott’s new extended-stay properties will span about 54,000 square feet for 124 rooms. The company thinks demand for these hotels will be strongest in suburban markets, about 30 or so miles outside large metropolitan areas, where it is less expensive to build and there is a limited supply of temporary lodging.

The new extended-stay line will be Hilton’s 22nd brand, while Marriott currently has 31 brands.

Extended stay remains an enduring bright spot for a hospitality industry that was rocked by the pandemic before recovering more recently. These properties had an occupancy rate of 74.7% last year, up slightly from the prior year and significantly higher than overall hotel occupancy in the U.S., which reached 62.6% in 2022, according to hotel-data tracker STR.

The rising popularity of extended-stay brands reflects how millions of Americans are working and traveling differently today than before the pandemic, often blending business and leisure travel. That can lead to longer trips, making lodging with extra space and kitchen facilities more appealing.

“The disconnect from office has created a freedom from a home base that is allowing people to travel and work away from home on a more extended basis," said Noah Silverman, Marriott’s global development officer for the U.S. and Canada.

Other hotel companies are also ramping up extended-stay offerings. Hyatt said last month that it has preliminary commitments from developers for 100 hotels under its new brand Hyatt Studios, which is at a higher price point than the pending Hilton and Marriott brands.

Extended stay’s resilience during the pandemic indicates that demand for these rooms will remain strong even if the U.S. economy falls into recession later this year as many economists have predicted, said Jan Freitag, national director for hospitality-market analytics at CoStar.

“There is a certain type of traveler that just has to be on the road," he said.

These properties have long appealed to workers who needed a room for a few weeks or months, such as construction crews and business consultants on temporary assignments. During the pandemic, traveling nurses and doctors stayed in these hotels while working at hospitals in Covid-19 hot spots.

People relocating for personal reasons, such as new jobs, home renovations or divorce, also use extended stay. Dislocations due to natural disasters like floods and hurricanes have similarly increased the need for temporary accommodations.

Mit Shah, CEO of hotel investor Noble Investment Group, suggested Hilton’s new brand will be popular in areas where there is a shortage of workforce housing. “There is a nexus between hospitality and multifamily," he said.

Investment firms Blackstone and Starwood Capital made a big bet on the sector in 2021 when they teamed up to acquire hotel owner and operator Extended Stay America for $6 billion. They partnered again last year to jointly acquire 111 properties under the WoodSpring Suites extended-stay brand for about $1.5 billion.

At a time when hotel room rates have been soaring, prices for the new brands are meant to be affordable. Marriott expects hotels to set room rates at around $80 a night, while Hilton plans to charge about $100. The average daily rate for a U.S. hotel room last year was $149, according to STR.

Extended-stay hotels provide fewer amenities than select or full-service properties, with most offering limited food-service options and less frequent housekeeping. Marriott anticipates needing about six to eight full-time employees at each of its new extended-stay properties, Silverman said.

“In today’s world, with higher wages almost daily and more difficulty in attracting associates, that’s very important," said Mark Laport, chief executive of the hotel development and management firm Concord Hospitality Enterprises Company.

Concord has 13 hotels under construction, six of which are extended-stay in the lower and midmarket price range. The firm expects to build hotels under the new Marriott brand in areas with strong job growth and hot housing markets, such as North Carolina, Florida, Texas and near cities like Phoenix and Nashville, Tenn.

The properties often generate returns for investors within the first year of operation, Laport said.

“That’s really important because hotel financing, in general, for ground-up development today is as difficult as I’ve ever seen it in my career," said Laport, who has been in the business for 40 years.

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