Travellers wishing to bridge the gap between the comforts of home and full-service hotels are checking into extended-stay hotels in increasing numbers.
“The extended-stay segment is one of the [industry] segments with [the] most potential for growth across Canada,” says Jeff Curry, senior director of development for Hilton Canada, the global hotel management and franchise company.
Mr. Curry says there has been a rise in demand in markets that include universities, hospitals, military bases, airports, all-season resorts and dense corporate and industrial areas.
Extended-stay hotels are typically defined as properties catering to guests staying five or more nights; nurses, first responders and the military have been using them regularly during the COVID-19 pandemic.
“The segment is under-serviced in Canada,” says Alam Pirani, executive managing director of hotels, Canada and Caribbean, Colliers Hotels. “Even prior to COVID, this is a sector that achieved significant premiums and margins from an operating perspective.”
Often less expensive than renting an apartment, extended-stay hotels can be short-term homes for people going through challenging times, such as job loss and relationship breakdowns, but the current “proliferation” of product, says Mr. Pirani, is being driven by leisure.
In the U.S., the overall hotel sector is frequently supported by institutional capital investment, says Mr. Pirani, whereas in Canada, there are more private capital hotel investment companies and private owners.
About 24 to 25 per cent of new hotel development in the U.S. is for extended-stay properties while a “significant portion” of new development in Canada is extended-stay, he says.
According to CBRE construction tracking data, 30 per cent of the new hotels in the development pipeline (conversion and new builds) would be classified as extended-stay hotels.
“[For developers] looking at what they want to build coming out of COVID, extended stay is at the top of their list, no doubt.— Nicole Nguyen, senior vice-president, CBRE Hotels
And Colliers data show that currently operating extended-stay branded hotels make up approximately 2.6 per cent of Canadian rooms inventory. However, that number increases to 14.5 per cent of rooms proposed and under construction as of Q4, 2022.
“From a profitability standpoint, for the owners, [extended-stay hotels] tend to be a strong cash flow asset,” says Nicole Nguyen, senior vice-president, CBRE Hotels. “It’s been growing from an investor standpoint for quite some time. Travel was heavily restricted through COVID, but [extended stay] still did well. [For developers] looking at what they want to build coming out of COVID, extended stay is at the top of their list, no doubt.”
However, they are “incredibly” expensive to build because of the higher gross floor area, she says. “I wouldn’t expect that you will see them popping up on every street corner, but certainly the investor interest is there.”
Before the pandemic, says Ms. Nguyen, extended-stay hotels generated a profit margin of 37 per cent before franchise and management fees and a reserve for replacement (funds that are set aside from a property’s operating cash flow to fund furniture, fixtures and equipment) – the second-best profit margin, just behind budget-friendly hotels.
“It’s probably safe to say [there is a] five- to seven-percentage-point spread versus the market average on profit margins, and it would be higher compared to full-service hotels,” says Mr. Pirani.
Hilton’s Mr. Curry says extended-stay hotels currently make up 20 per cent of the company’s development pipeline and represent 17 per cent of its portfolio in Canada.
This year, it opened the 92-room Home2 Suites by Hilton Huntsville, in Huntsville, Ont., with two more slated to open in Kitchener, Ont., and Quebec City.
The draws for guests are cheaper rates and additional living space, and since the hotels are not full-service hotels, operators are not paying for full-time front desk, cleaning staff or full-service restaurants.
“These are all factors that drive a better margin in a hotel,” Mr. Pirani says. The appeal for investors isn’t just the labour-cost savings, he adds – it also addresses the industry’s shrinking labour pool.
A Statistics Canada survey, modified in November, shows that 46.3 per cent of businesses in accommodation and food services was experiencing a shortage of labour.
Rooms are configured with the cost-conscious in mind and amenities offer laundry and fitness areas, free WiFi, outdoor spaces, 24-hour business centres and pet-friendly environments.
In November, Marriott International Inc. announced the launch of Apartments by Marriott Bonvoy, apartment-style accommodations in the U.S. and Canada, to respond to growing consumer demand for “workation” travellers looking to blend work with leisure.
“With branded extended stay, there is no guessing game about what type of product you are going to get,” Mr. Pirani says, adding extended stay can compete with Airbnb in terms of pricing.
Hilton’s more upscale offering, Homewood Suites by Hilton, has over 530 locations in the U.S., Mexico, Canada and the Caribbean (with more than 115 in the pipeline), and offers generous-sized suites, separate living and sleeping areas, full equipped kitchens and full-sized refrigerators.
Rates at the Homewood Suites location in Toronto start at $182 per night, and $201 per night in downtown Calgary.
“A lot of travellers, especially corporate, really like the product,” says Ms. Nguyen. “As more are built, more consumers will be exposed to [extended stay] and look for it when they travel. From a leisure standpoint, it’s really growing.”