Extended-stay performance tale of two quarters

Construction for extended-stay rooms declined 20% year-over-year and remained stable over the last six months. The report found that a significant portion of rooms reported as under construction have not started. Assuming a similar situation occurs over the next year, national extended-stay supply growth will be less than 4% which is below both the four-year average pre-COVID and the long-term average.

Extended-stay hotel demand, which Highland said has never declined annually except in 2020, continues to grow but is well below its long-term average. Without an uptick in demand, the near-term outlook is a further decline in extended-stay occupancy, and the report said if that continues, ADR is likely to follow.

Other highlights from the report:

• Extended-stay supply keeps climbing, but growth is slowing. At mid-year 2025, the segment topped 612,000 rooms, a 3.5% gain YOY. Room night supply rose just 2.7%, a far cry from the 6.4% pre-COVID average. Economy brands are driving the bulk of that expansion, up 10.7%, mainly through conversions rather than new construction. Rebranding, de-flagging and sales to apartment operators also continue to shuffle the numbers. The report said that with conversion activity expected to ease, full-year 2025 growth will remain below long-term norms.
• Performance tells a mixed story. Economy and mid-price extended-stay hotels posted record revenues in the first half and Q2, while upscale extended-stay hotels slipped, down 0.9% year-to-date and 1.4% in Q2. That contrasts with the broader upscale class, which eked out a modest 0.6% revenue lift in the first half before dipping slightly in Q2.
  

• Occupancy is under pressure. Every month in the first half of 2025, posted a decline, with losses accelerating in Q2. Economy hotels saw the sharpest contractions, in part from ADR hikes, while upscale properties posted minor occupancy declines. Economy brands led ADR growth, especially in Q1, but upscale ADR slid in Q2.
• The RevPAR math doesn’t favor extended-stay. Total segment RevPAR dropped 1.1% in H1, erasing early Q1 gains with steady Q2 losses. That underperformance trails the industry’s 0.8% RevPAR gain, though excluding luxury and upper-upscale hotels, the broader market was also in negative territory.
  

• Development momentum has cooled. At the end of Q2, just over 39,000 rooms were under construction, down 20% from 2024. Higher rates, rising costs and tariff uncertainty continue to challenge financing. While near-term openings will lag, extended-stay remains a long-game play—supply forecasts through 2029 remain bullish, fueled by brand launches and a deep pipeline.