Hotels Taking Advantage of Work from Home Trend

The work-from-home, or WFH, phenomenon came about during the pandemic but, in my view, has always been somewhat of a misnomer. Perhaps anywhere but office, or ABO, is the more appropriate acronym as what it really involves is working from anywhere but the actual office. Just ask the executives at SL Green—a large office real estate investment trust with a heavy New York City focus—whose credit was recently placed on watch for a downgrade by Moody’s due in large part to slow leasing/high vacancy rates, a heavy debt load, and stubbornly high-interest rates. The hotel chains, Hilton and Marriot, together with dozens of brands under their umbrella flag are about to launch new yet-to-be-named extended-stay brands in 2024 aimed at the ABO crowd i.e., guests seeking longer booking periods.

The newly developed hotels will have rooms that cater to guests seeking 20 nights or longer with larger kitchens containing full-size refrigerators, dishwashers, and cooktops. The properties will have gyms, laundry facilities, and a small market with snacks and toiletries. Expectations are high as Hilton’s CEO, Chris Nassetta, was quoted in a recent WSJ article saying the new brand will likely be “one of the—if not the—most profitable brands on a pure margin basis that we have.” These extended-stay hotels are likely to be in suburban markets where supply is limited and it is less expensive to build.

Room rates are meant to be affordable at $80 and $100 per night ($2,400-$3,000 per month) at the Marriot and Hilton brands, respectively. For those living in New York City, these numbers should make your mouth water as monthly rents in Manhattan recently exceeded $5,000. Hyatt is also introducing its own brand, Hyatt Studios, at a higher—but still unannounced—daily rate. And with standard hotel room rates soaring to an average daily rate of $149, according to hotel data tracker STR, these price points are welcome news to prospective guests. With less frequent housekeeping and fewer amenities, staffing extended-stay hotel rooms require fewer employees (i.e., six to eight full-time workers) than a more typical hotel. And with higher wages crimping bottom lines for companies across industries, including hotel chains, this model represents a win-win for hotel operators and guests alike. Furthermore, these properties are somewhat immune to today’s financing challenges as they typically generate returns for investors within the first year of operation.

Untethered to an office or even a home base allowing people to travel and work on a more extended basis but who is the target customer for the extended stay concept? Several groups, it turns out: think of construction crews and business consultants on temporary projects and work assignments. Traveling nurses and doctors also took advantage of extended-stay hotels during the pandemic when traveling to Covid-19 outbreaks around the country. Extended stays also appeal to those recently divorced, families undergoing home renovations or dislocations due to natural disasters. It’s early innings for the extended stay model, but the results thus far are promising: in 2022, occupancy rates in the United States were at approximately 75% compared to approximately 63% for the more standard hotel, according to STR. Extended stay offerings represent a new addition to the hospitality spectrum of options and it’s here to stay to the dismay of office landlords and perhaps, to some extent, the stakeholders of Airbnb and companies like it.