Since 2020, the U.S. select-service and extended-stay hotel sector has undergone a remarkable evolution. These once-distinct categories have coalesced into a dynamic, unified market that deftly caters to the sophisticated needs of today’s travelers. By offering a curated mix of essential amenities and longer-stay comforts, this hybrid sector has not only weathered the storm but emerged as the industry’s golden child. Even as capital markets face turbulence, this adaptive and resilient segment continues to captivate investors and guests alike.
The following analysis provides a deep dive into the key factors driving their success—from operational efficiencies to brand proliferation and heightened investor interest—revealing why this segment is outperforming its peers.
Performance That Speaks Volumes
Select-service and extended-stay hotels have demonstrated robust performance in recent years, with RevPAR reaching a record high of $78 in 2024, up 14 percent from 2019 levels and demand increasing by 232,000 room nights year-over-year. This growth has brought total room night demand close to full recovery from 2019 levels, with expectations to surpass pre-pandemic demand by the end of 2025
The sector’s success can be attributed to its adaptability to evolving traveler preferences. As live-work-play boundaries blur and “bleisure” trips become more common, these hotels have transformed to meet new needs. Features like in-room kitchenettes and recreational areas have become standard offerings, attracting a diverse mix of leisure, business and “bleisure” travelers.
The sector’s durability is further evidenced by its operational efficiency. The select-service and extended-stay sector has consistently outperformed full-service hotels in terms of gross operating profit margins. Even during the turbulent year of 2020, the sector maintained a 26 percent GOP margin, outpacing full-service hotels by 11 percentage points. This efficiency is largely due to the sector’s lean operating model characterized by fewer staff and public areas, technology integration and limited amenities, which contributes to the sector’s higher profit margins.
The hospitality sector’s profitability has also outperformed inflation, with EBITDA PAR growing at 23 percent CAGR compared to 5 percent CPI over the past four years [1]. This resilience, driven by strong rate growth, offers investors attractive returns even during economic challenges.
Brand Proliferation: A New Era of Choice
Commercial real estate, including the U.S. select-service and extended-stay hotel sector, has long been characterized by cyclical patterns of development, with notable growth spurts in the late 90s, early 2000s and in the wake of the Great Financial Crisis. However, recent years have seen a significant shift in this trend, as new supply growth has slowed to a crawl.
Since 2020, annual room supply growth has consistently fallen below the long-term average of 2.6 percent observed since 1988. This subdued growth is due to an environment of elevated interest rates, high development costs and persistent supply chain disruptions—a trend that is projected to continue in the coming years.
This constrained supply growth is expected to bolster the sector’s overall performance, profitability and investor appeal. After all, those who already have skin in the game stand to benefit substantially. This slowdown in supply has also prompted brand companies to explore alternative strategies for achieving their net unit growth targets.
Since 2000, the sector has seen an explosion of new brands enter the space, growing from 184 to 214. Branded hotels now account for a whopping 74 percent of total supply—a 9-percentage point increase from the pre-2000 era.
From IHG’s Atwell Suites to Hilton’s Tempo and LivSmart Studios by Hilton, major hotel companies have been in a race to capture the evolving consumer wallet. This proliferation of brands isn’t just a numbers game; it’s a reflection of the sector’s dynamic growth and the industry’s keen awareness of changing consumer preferences.
The growth in branded hotel supply has been nothing short of remarkable. From 1.7 million rooms in 2000 to 3.3 million in 2024, it represents a staggering 90 percent increase, outpacing independent hotels by 76 percentage points.
With organic new supply growth limited in today’s market, these companies have had to get creative. Enter the era of mergers, acquisitions and conversions. In 2024, a significant M&A event marked the hotel industry when OYO acquired G6 Hospitality for $525 million, bringing all Motel 6 and Studio 6 hotels under its umbrella. This move signaled a new phase in the sector’s evolution, one where strategic acquisitions could reshape the competitive landscape overnight.
Simultaneously, we’ve seen a pivot towards conversion-focused brands. From Sonesta’s Signature Inn to Marriott’s City Express, major hotel groups are introducing or revamping brands specifically designed for conversion. This strategy allows for rapid expansion without the need for new construction, a particularly attractive option in the face of rising development, financing and Property Improvement Plan (PIP) costs.
These strategies allow hotel brand companies to rapidly expand their footprint and offer more options to travelers without relying solely on new construction. With organic supply growth constrained and the pressure to drive fee revenue ever-present, expect hotel brand companies to increasingly rely on M&A and conversions to achieve their net unit growth targets.
Record-Breaking Liquidity and Investment Trends
Since the onset of the COVID-19 pandemic, liquidity for select-service and extended-stay hotels has reached a staggering $62.6 billion, nearly doubling the previous four-year cycle and setting a record for a 48-month period in U.S. history.
Despite a 19 percent contraction in investment volume in 2024, mirroring the overall U.S. hotel market decline, the sector continues to command nearly half of the country’s total hotel investment volume. This sustained interest is driven by the sector’s robust performance, efficient operating model and outsized yields compared to other primary commercial real estate sectors.
Since 2007, the sector has delivered an average yield of 8.3 percent, outperforming the industrial, multi-housing, office and retail sectors by 230 basis points. Moreover, it has demonstrated the lowest yield volatility over the past 16 years, offering a beacon of stability in an uncertain market.
Additionally, the current landscape of high debt costs has reshaped the buyer profile. Hotel owner-operators have become the most active buyers, driven by the ability for these owners to consolidate above-property costs thereby driving even higher margins in an already high-profit sector. High net worth individuals (HNWIs) captured the largest share of sector liquidity in 2024 at 17 percent, benefiting from their reduced reliance on leverage.
Looking ahead, owner-operators and HNWIs are expected to increase their acquisitions, particularly as major brands step back from management roles in this sector. Private equity, while temporarily sidelined, is poised for a comeback as debt markets stabilize.
Diversifying Lender Landscape
In 2024, loan origination volume for the U.S. select-service and extended-stay hotel sector grew by an impressive 3.2 percent year-over-year, reaching $21.3 billion and surpassing the long-term average by 3.7 percent.
What’s driving this sustained interest? The answer lies, in part, in the sector’s more modest single-asset average deal sizes, which currently stands at $17 million, significantly lower than that of full-service hotels.
But it’s not just about deal size. The lending landscape is also evolving, so while banks continue to dominate loan originations in this space, their grip is loosening, giving way to a more diverse and dynamic lending ecosystem.
Investor-driven lending increased from 11 percent in 2023 to 15 percent in 2024. This uptick likely reflects a perfect storm of falling interest rates coupled with the sector’s robust performance, profitability and durability. Meanwhile, insurance companies dramatically boosted their loan origination volume in 2024 to 3.4 times that of the previous year. CMBS lending jumped from 12 percent in 2023 to 18 percent in 2024, driven largely by an increase in refinancings.
This diversification of lenders, which is approaching pre-pandemic levels, speaks volumes about the growing confidence in the sector. Looking ahead, JLL anticipates that the sector’s lender composition will remain on a par with pre-Covid averages in the medium term.
Final Thoughts
Select-service and extended-stay hotels have revolutionized the industry, demonstrating remarkable adaptability, resilience and profitability. The sector’s robust performance metrics, coupled with increasing brand proliferation and strong investor interest, paint a promising picture. Despite challenges in the broader economic landscape, these hotels continue to outperform their peers, offering attractive returns and stability.
To investors eyeing the select-service and extended-stay sector: the writing isn’t just on the wall—it’s on the bottom line.
[1] CAGRs are calculated from YTD November 2021 to YTD November 2024. GOP (gross operating profit) margin is calculated as GOP / Total Revenue x 100 and focuses directly on operational expenses, excluding overhead costs. EBITDA PAR (per available room) measures a hotel’s overall profitability on a per-room basis, considering any additional overhead costs and providing a full view of profitability and comparable metric with inflation.
This article was originally published in the April edition of Hotel Management magazine
Article by: Ophelia Makis is research manager at JLL’s Hotels and Hospitality Group. (JLL)
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