US infrastructure building boom revs up extended-stay market

Choice Hotels International

08/12/2023 11:00

By Amina Niasse
       NEW YORK, Dec 8 (Reuters) - The Biden administration's
infrastructure spending blitz has put more construction laborers
on the road for work this year, fueling a race by extended-stay
hotel operators to win their business.
    Data from Navan, a corporate travel management company,
shows construction industry extended-stay lodging bookings are
up 120% in the two years through the end of November. More
broadly, the industry has outspent all other sectors on work
travel overall by 9.2% in the 12 months through August as more
workers temporarily relocate to live around project sites.
    “If you look at the infrastructure bill and reshoring of
American jobs, there's a huge amount of new business coming in -
50 million to 100 million room nights over the next decade that
really are going to feed the extended-stay profile,” Scott
Oaksmith, chief financial officer of Choice Hotels, said during
a recent third-quarter earnings call.
    The Infrastructure Investment and Jobs Act passed in 2021
had targeted $1.2 trillion of transportation and infrastructure
spending over five years and has been credited in part for
helping construction employment weather a homebuilding downturn
caused by rising interest rates. Construction employment has
risen by 2.2% so far this year, outpacing the 1.55% increase in
overall employment.
    From the end of 2019 through the end of June, Choice Hotels
experienced 73% growth in revenue per available room in the
South Atlantic and a 400% increase in the Mountain West, a
spokesperson for the chain said, areas that have seen a raft of
project announcements under the IIJA. 
    Expansion of Choice Hotels' extended-stay brands, which
include Everhome Suites and MainStay Suites among others, has
involved tracking large-scale infrastructure project
announcements in order to cater to construction workers and
related trades, said Anna Scozzafava, chief strategy officer and
senior vice president for technology at Choice Hotels.
    "We can follow the funding, and see where these jobs and
investment dollars are going," said Scozzafava.
    This year and 2022 were among the strongest years for demand
growth for Choice's extended-stay brands, she said. "We're
getting construction crews, but also some trades that go along
with construction as well. We had a big win ... with a steel
company in Georgia that needed rooms for six to seven months."
    
    REMOTE AREAS
    Choice is not alone in looking to grow the category and in
fact faces competition from Wyndham Hotels & Resorts, for which
it has launched an unsolicited $7.8 billion takeover bid. 
    Wyndham has expanded investment in hotel-level marketing and
its loyalty program in an effort to boost infrastructure-related
bookings and capture a windfall from the IIJA, Wyndham Chief
Executive Officer Geoffrey Ballotti said in the company's
third-quarter earnings call.
    While less than 10% of hotel rooms are extended-stay units,
the category is fast-growing with extended-stay hotels
representing 37% of lodging under development, according to
Patrick Scholes, managing director of lodging and leisure equity
research at Truist Securities.
    “Wyndham Hotels is the biggest winner,” Scholes said.
“Wyndham was a hotel company starved of new brands, and then
about two years ago they started to introduce this Echo brand,
which has been strong out of the gate.”
    The construction industry has historically seen high rates
of itinerant labor, according to Greg Sizemore, vice president
of health, safety, environment and workforce development at
Associated Builders and Contractors, a trade association based
in Washington. 
    “I worked post-Katrina on the Mississippi Gulf Coast when
everyone was installing trailers down there for people to take
up temporary housing. But there was nowhere for us to stay. We
had men and women sleeping in their cars until the hotels opened
back up," said Sizemore, who traveled as a construction worker
for 30 years.
    Demand for construction workers remains strong, with the
industry's vacancy rate of 5% as of October being roughly twice
the historic job openings rate over the two decades preceding
the pandemic, according to Bureau of Labor Statistics data.
    That often means the employer foots some or most of the cost
of lodging workers in remote areas where local housing options
are limited, said Brandon Mabile, strategic development manager
at Performance Contractors. The Baton Rouge-based industrial
construction company employs about 700 workers on 20 current
projects. 
    “We’ve got crews in some pretty remote areas at the moment,”
said Mabile. “In Montana, you're going to have to pay a little
more than in Oklahoma or Texas." 
        As project funding pours into less densely populated
areas, the cost of housing employees rises and demand for
extended-stay properties and other alternatives like
recreational vehicle parks spikes as employers seek acceptable
lodging at affordable rates, according to Sizemore.
  
        "Options are everything," he said. 
  

 (Reporting by Amina Niasse; Editing by Dan Burns and Andrea
Ricci)
 ((amina.niasse@thomsonreuters.com;))