LE: U.S. hotel construction pipeline down for the short-term

According to the Q3 2021 U.S. construction pipeline report from Lodging Econometrics, the total U.S. construction pipeline stands at 4,837 hotels with 592,259 rooms, down 8 percent by projects and 10 percent by rooms year over year.

Renovation and conversion pipeline activity remains steady at the end of the quarter, with conversion projects hitting a cyclical peak, and ending the quarter at 752 hotels with 79,024 rooms. Combined, renovation and conversion activity accounts for 1,253 projects and 176,305 rooms.

Through the third quarter of 2021, the U.S. opened 665 new hotels with 85,306 rooms with another 221 hotels with 23,026 rooms anticipated to open by the end of the year, totaling 886 hotels with 108,332 rooms for 2021. LE's research analysts expect an increase in new hotel openings in 2022, with 970 projects accounting for 110,123 rooms forecast to open in 2022 and another 961 hotels with 111,249 rooms anticipated to open in 2023.

LE Analysis

While project numbers have seen a slight increase over second quarter totals, overall, the construction pipeline remains largely muted due to a reduced inflow of new projects in the pipeline as compared to pre-COVID levels and significant hotel openings during the first half of the year that exited the pipeline. The prolonged effects of the pandemic, above average inflation, rising interest rates, material shortages and price increases have been and will continue to be key factors in decision-making for developers through the end of the year, according to the company.

However, many developers have a long-term positive outlook on hotel development and projects in the early planning stage are up considerably, with 1,978 hotels and 239,831 rooms, a 27 percent increase by projects and 25 percent by rooms year over year and reaching a cyclical peak this quarter. Conversely, projects scheduled to start construction in the next 12 months are down 14 percent by projects and 15 percent by rooms year over year, with 1,824 hotels and 210,189 rooms at the end of the third quarter. Projects under construction were also down in Q3, ending the quarter at 1,035 hotels with 142,239 rooms. This is largely due to projects that have completed construction and have opened. Inflation and the increasing cost and sourcing of labor and materials, combined with supply chain shortages and delays, continue to be a major variable for hotel development. In response, developers are reworking budgets, revising plans to minimize costs, and adjusting construction start and project opening dates to endure the challenges of a recovering industry.

Though the path to full recovery may be longer than originally expected, two main steppingstones aiding in the recovery have been the recent rise in hotel stock values as well as increases in lending activity. Rebounding hotel stocks and better-than-expected hotel and travel demand throughout the summer season has renewed developer sentiment, according to Lodging Econometrics.