The Extended-Stay Boom: Why Sun Belt Markets Are the New Safe Haven for Hotel Investors

The U.S. hotel sector is bifurcating. While luxury and budget segments face volatility—squeezed by rising interest rates, overbuilt markets, and short-term rental disruption—extended-stay hotels are emerging as the “middle class” of hospitality: steady, resilient, and increasingly essential. In a landscape where traditional hotels struggle to command premium rates, extended-stay properties are cash-flow machines, fueled by demand from traveling nurses, project crews, and families on the move. Nowhere is this more evident than in Sun Belt markets like Dallas and Atlanta, where strategic acquisitions and developments could yield outsized returns.

### The Demand Drivers: A Foundation of Stability
Extended-stay hotels (typically defined as properties where guests stay for 28 days or longer) have quietly become the unsung heroes of the lodging industry. Their growth is underpinned by structural shifts:
- Labor Mobility: Relocating families and gig workers need affordable, flexible housing. Extended-stay hotels provide a bridge between temporary living and permanent moves.
- Healthcare Needs: The nursing shortage has turned hotels into de facto housing for traveling medical teams. The has surged by 30%, with extended-stay hotels often their go-to lodging.
- Project Crews: Construction and energy sectors in Sun Belt markets rely on transient labor pools, creating steady demand for extended-stay accommodations.

These factors insulate extended-stay hotels from the cyclicality plaguing the broader hotel sector. Even as leisure travel cools and business travel normalizes post-pandemic, extended-stay occupancy rates remain robust. For instance, show they consistently outperform by 10 percentage points, a gap that has widened since 2023.

### Supply Constraints in a Growth Market
The extended-stay boom isn't just about demand—it's also about supply discipline. The U.S. hotel industry is projected to grow by just 1.5% in 2025, with most new supply concentrated in extended-stay and upper midscale segments. But this isn't overbuilding—it's strategic development.

Take Dallas, which leads the nation with 204 hotel projects (23,669 rooms) in its pipeline, nearly half of which are extended-stay or upper midscale. Atlanta follows with 168 projects (19,431 rooms). These markets are not just adding rooms—they're targeting underserved submarkets. For example, Dallas's growth is concentrated in suburbs like Addison and Plano, where extended-stay hotels cater to tech and healthcare workers. Atlanta's pipeline leans into the booming logistics sector, with projects near Hartsfield-Jackson Airport and industrial hubs.

The reveals that extended-stay growth has been steady, not speculative. Construction costs and financing hurdles—CMBS lending dropped 44% in Q1 2025—have kept supply in check, ensuring new projects are only greenlit in markets with proven demand.

### Cap Rates: A Sweet Spot for Yield Seekers
Extended-stay hotels are also a valuation play. While luxury hotels in coastal gateway cities trade at cap rates as low as 5.9% (e.g., Encore Boston Harbor), extended-stay properties in high-growth Sun Belt markets offer a more compelling risk-adjusted return.

- Primary Markets: Prime extended-stay assets in Dallas and Atlanta trade at 6–8% cap rates, thanks to their steady cash flows and strategic locations.
- Secondary Markets: Value-add opportunities in cities like Nashville and Phoenix command 8–10% cap rates, reflecting their growth potential and higher operational risks.

Compare this to the broader hotel market, where cap rates have averaged 8.0% nationally since 2023. Extended-stay's resilience has allowed it to command lower cap rates than other segments, even as interest rates climb. The shows this divergence: extended-stay cap rates have risen less sharply, a testament to their demand stability.

### The Investment Playbook: Target Sun Belt, Avoid Coastal Overhang
The thesis is clear: buy into extended-stay hotels in Sun Belt job hubs. Here's how to execute:

1. Acquire in Dallas and Atlanta: Focus on properties near healthcare hubs, logistics centers, or tech corridors. These locations are magnets for the labor and healthcare demand fueling extended-stay's growth.
2. Develop in Underserved Submarkets: Sun Belt suburbs and industrial zones often lack sufficient extended-stay inventory. A project near Dallas's Addison Tollway or Atlanta's Hartsfield Airport could fill a critical gap.
3. Avoid Coastal Overbuilding: Coastal gateway cities like New York and San Francisco are suffering from oversupply in the luxury segment. Extended-stay there faces stiff competition from Airbnb and lacks the labor-driven demand of Sun Belt markets.

### Risks and Considerations
No investment is risk-free. Extended-stay's insulation from short-term rental volatility is real—guests prioritize amenities like kitchens and laundry—but overdevelopment remains a concern. Monitor pipelines: while Dallas and Atlanta's current projects are spaced over years, a sudden surge in financing could shift the balance.

### Conclusion: A Hedge Against Bifurcation
In a hotel sector increasingly divided between luxury winners and budget losers, extended-stay hotels are the steady hand in the storm. Their cash flows are recession-resistant, their cap rates are competitive, and their role in labor and healthcare dynamics makes them a hedge against macroeconomic uncertainty.

For investors, the path is clear: allocate to extended-stay assets in Sun Belt growth markets. These properties offer the rare combination of yield and resilience—a portfolio anchor in an otherwise fractured industry.



The extended-stay boom isn't just a trend—it's a new reality. Investors who act now will secure a piece of it.