Select-service, extended-stay dominate US growth story

NATIONAL REPORT – U.S. select-service and extended-stay hotel sector growth in 2024 reinforced its investment appeal with record-breaking RevPAR reaching $78, 14% above 2019 levels, as well as demand surging by 232,000 room nights year-over-year, almost fully recovered from 2019, according to a new study from JLL.

Liquidity for select-service and extended-stay hotels has reached $62.6 billion since the onset of COVID (2021-2024), nearly 2x that of the prior four-year cycle and by far the highest 48-month total in U.S. history. Owner-operators, HNWIs, and private equity firms have increasingly gravitated towards the sector driven by its robust fundamental performance, lean operating model, and outsized yields relative to other primary commercial real estate sectors.

JLL stated that investment activity is likely to maintain its momentum, given that acquiring properties in the sector’s top U.S. markets is 37% below the cost of new development.

Since 2007, the sector has achieved an average yield of 8.3%, 230 basis points higher than the average of the industrial, multi-housing, office, and retail sectors. Moreover, the select-service and extended-stay sector has also provided more stability, with the lowest level of yield volatility over the past 16 years relative to other main property sectors. As investors continue to navigate ongoing capital market dislocation, this consistency has increased the sector's attractiveness.

JLL added that the sector also demonstrates superior operational efficiency, consistently achieving higher profit margins than their full-service counterparts. Furthermore, the sector’s overall profitability has proven resilient to inflation, with growth rates exceeding CPI’s upturn over the last four years.

Brand proliferation has been significant, with the sector now boasting 214 total hotel brands. Just this week, Hyatt Hotels Corp. introduced a new upper-midscale brand, Hyatt Select, which further underscores the growing importance and appeal of this segment in the hospitality industry.

Given today’s lack of organic supply growth, JLL said hotel brand companies are now prioritizing M&A and conversions to boost continued net unit growth.

While high interest rates have temporarily impacted portfolio transactions, this trend is expected to reverse as rates and spreads have decreased.

As the industry navigates evolving market conditions, engaged with a diversity of lender types, JLL said the select-service and extended-stay hotel sector is well-positioned to leverage its strengths and maintain its status as a robust and attractive investment opportunity in the coming years.