Hotel construction pipeline in the U.S. remained steady in Q2 2023 and was only 5% from its all-time high in terms of projects. Despite some headwinds, hotel developers have been locking down premium locations in the country for new developments, according to the latest analysis by Lodging Econometrics.
According to the Q2 2023 U.S. Construction Pipeline Trend Report, the hotel construction pipeline stood at 5,572 projects/660,061 rooms, with projects up 7% YOY and rooms up 6% YOY.
Construction pipeline increased quarter-over-quarter (QOQ), while franchise companies and developers pushed through short-term challenges while envisioning long-term prospects.
The increased consumer confidence and sentiment have resulted in a healthy demand for rooms, which has been of great help to the economy and the hotel industry. The robust demand is likely to continue through summer and into the fall, with heavy tourist demand through August and the kick-off of the fall conference season after Labor Day.
At the end of the second quarter, projects under construction saw modest QOQ growth in the past year to stand at 1,062 projects/141,681 rooms, up 10% and 8% YOY, respectively. Projects scheduled to start construction in the next 12 months increased by 11% by projects and a 12% increase by rooms YOY to stand at 2,232 projects/260,595 rooms. This reflects that projects are progressing beyond the planning stage, and developers are sourcing financing to get the projects “into the ground.”
YOY project counts in the early planning stage saw a slight change to end the quarter with 2,278 projects/258,785 rooms. The quarter under review was the 10th consecutive quarter to see the number of rooms in the early planning stage exceed 200,000.
UPPER, UPPER MIDSCALE HOTEL SEGMENT
Q2 pipeline in the U.S. was mainly dominated by upscale and upper midscale new construction projects, which constituted 62% of the projects and 57% of rooms in the country’s total construction pipeline. These two segments represented 63% of projects and 57% of the rooms expected to open by the end of the year and are anticipated to have higher room growth rates till 2025.
In the last four quarters, announced renovations and brand conversions reached an all-time high in project counts, totaling 1,939 projects/253,473 rooms. Upscale, upper midscale and economy brands constituted most of these projects by the end of the second quarter.
POPULARITY OF EXTENDED-STAY HOTELS
Extended-stay hotels are increasingly becoming more popular in the U.S., rising consecutively in the last eight quarters. By the end of the second quarter, there were 2,083 extended-stay projects totaling 214,557 rooms in the country’s hotel construction pipeline.
Extended-stay projects represented 32% of projects under construction in the total pipeline, 42% of projects expected to start construction in the next 12 months and 36% of projects in early planning stages.
A total of 130 extended-stay hotels opened in 2020, adding 13,647 rooms to the country’s overall supply. This year, 180 projects/18,713 rooms are likely to open. In 2024, 236 projects/24,281 rooms and in 2025, 319 projects/32,798 rooms are estimated to open in the segment.
The segment is growing 2.5 to 3.5 times the actual and predicted industry growth rates from 2022-2025.
So far in the first and second quarters, 224 hotels totaling 27,194 rooms opened across the U.S. Lodging Econometrics expects another 384 projects, 48,607 rooms to open through the year to total 608 new hotels/75,801 rooms by the end of the year, a 1.4% rise in new supply this year.
The total year-end forecast for this year represents a 22% YOY rise in new hotels from 2022, which stood at 475 hotels/56,157 rooms.
A total of 700 new hotels/79,422 rooms are expected to open in 2024, representing another 1.4% rise in new supply growth. In 2025, 808 projects/87,462 rooms are anticipated to open for a 1.5% increase in new supply.