U.S. pipeline in early stages of new real estate cycle21 Dec, 2012 By: Patrick Ford
|Texas has the largest pipeline in the country at 378 projects with Houston leading the way with 73 projects.|
At the end of Q3 2012, the total construction pipeline stood at 2,771 projects/341,350 rooms. Although showing a slight 3 percent and 2 percent fall off year-over-year, it’s the second quarter in a row that the total pipeline has increased over the cyclical bottom set in Q1 2012.
Projects and rooms under construction are both up 37 percent year-over-year and have been rising for five consecutive quarters over their cyclical bottom set in Q2 2011. Projects scheduled to start construction in the next 12 months are up 3 percent year-over-year, while rooms are up 6 percent.
Changes in internal pipeline metrics also point to a modest recovery in pipeline growth and to an increase in forecasted new hotel openings two years outward. Annualized construction starts have been trending upward for seven consecutive quarters, while annualized new project announcements into the pipeline have been rising for four quarters. Although overall economic uncertainty may extend well into 2013, both metrics are positive indicators that pipeline growth is continuing to expand, however modestly.
Smaller Projects Lead the Pipeline Recovery
Of the 2,771 projects in the pipeline, only 232 or 8 percent of the projects are larger than 200 rooms. They are mostly luxury and upper-upscale “big box” type projects, but also include a number of upscale projects, too.
A disproportionately high 2,539 projects or 92 percent of the pipeline are smaller than 200 rooms; primarily upscale and midscale projects with a few high-end boutiques and some economy projects included as well.
Hotels less than 200 rooms can move from inception to completion quickly as they generally have fewer zoning, permitting and financing issues than larger hotels. Most often they enter the pipeline in the “Scheduled to Start in the Next 12 Months” stage bypassing early planning altogether.
Burgeoning project counts for smaller hotels along with a falling number of larger projects help explain why an apparently stalled total pipeline can still produce a growing number of new hotel openings. It’s always this way at the start of a new real estate cycle.
Top five States
Only three states, Texas, New York and California, have pipelines of greater than 200 projects and 30,000 rooms.
Texas has the largest pipeline in the country with 378 projects/38,972 rooms. It has four cities with greater than 30 projects in the pipeline; Houston leads with 73, Dallas has 49, Austin 45 and San Antonio 31.
The state of New York has a pipeline of 246 projects, 141 or 57 percent of which are in New York City. It’s the largest pipeline of all cities in the country and, if viewed as a state, with 141 projects/24,821 rooms, it amazingly would have the third largest statewide pipeline count in the country.
California has three cities, San Diego, Los Angeles and Riverside, that account for 48 percent of all pipeline projects and 56 percent of rooms.
Taken together, these three states represent about a third of all projects and rooms in the nationwide pipeline.
LE’s Forecast for New Hotel Openings
LE forecasts that 387 projects/41,736 rooms will open in 2012, a modest 12 percent room count increase over the 2011 cycle bottom.
Approximately the same levels are forecasted for 2013. In 2014, the acceleration of new project announcements into the pipeline over the last four quarters will begin to come online as new supply.
LE forecasts 432 projects/48,720 rooms to open in 2014, the beginning of a moderately uptrending supply increase leading into the middle of the decade.