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Competition Heats Up
IHG’s performance in the extended stay market has growing competition as the hotel investment community has locked into the opportunities this segment represents. Many current investments like Hilton’s Project H3 and Marriott’s Studio Res are still in the concept stages or have rolled out one or two properties. Hyatt Studios will be another contender in a new generation of extended stay options… when any of these come online in earnest.
That eventuality depends on funding and interest rates, which Skinner said have not been favorable to developers for traditional or extended stay properties. However, he said, “when underwriting terms start loosening again—which they ultimately will—you’ll likely see faster supply growth for extended stay hotels than the overall hotel market.”
The hotel investment community has been attracted by the resilience the sector showed during the pandemic and by the wider profit margins that extended stay properties enjoy. “The operating model is more efficient. Returns are higher,” said Skinner. “So you’re going to attract hotel developers looking for higher returns. You’ll also attract those looking to diversify their portfolio.”
Hotel companies, for sure, are keying into that. Hilton, Hyatt and Marriott are all realizing the portfolio opportunity they can achieve by floating down into market segments they have not yet explored.
“[Hyatt Studios] is the first brand that sits in the upper midscale. Everything else sits above that,” said Hyatt VP global sales Gus Vonderheide. “So we will finally dip our toes into an area that we really have left untapped.” Hyatt’s current extended stay brand is Hyatt House with approximately 120 locations. Hyatt Studios currently has two locations opening in Alabama and California in 2024 but is planned to open “hundreds” over the next three years, according to Vonderheide.
Hilton and Marriott both will go deeper into the affordable midscale. Hilton announced Project H3 in June, positioned to serve “workforce travelers,” according to the company’s website. Marriott announced its Studio Res product just weeks later, which global sales SVP Tammy Routh is excited to realize within the Marriott brand portfolio “because we didn’t really have anything to serve that segment of the market.”
IHG’s Atwell Studios is slightly bucking that trend, remaining in an upper midscale sweetspot but targeting trendy neighborhoods like Brickell in Miami and up-and-coming business markets like Austin, Charlotte and Denver. Choice Hotels will be another hotel company to watch in terms of extended stay, expanding its Woodspring Suites locations and debuting Everhome Suites last November in a play for the suburban market.
Asked who he thought would be better positioned to capture share with corporate clients, Skinner left it up to the market to decide. “It’s not like these are new entrants,” he said. “These are all highly experience extended stay brand operators.”
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