According to the latest U.S. Hotel Construction Pipeline Trend Report by Lodging Econometrics, at the close of the second quarter 2023, the hotel construction pipeline stands at 5,572 projects with 660,061 rooms, with projects up 7 percent year over year and rooms up 6 percent year over year.
The hotel construction pipeline grew incrementally quarter over quarter, as developers and franchise companies push through short-term challenges while envisioning long-term prospects. Inflation, higher interest rates and the general “wait and see” attitude of developers have prevailed in the economy in recent months; however, developers continue to believe in the strength of the economy long-term as witnessed by the continued growth in the pipeline, according to the report.
At the end of Q2, the total pipeline is only 5 percent from its all-time peak in terms of projects. Certainly, some head winds remain, but hotel developers are locking down prime locations for development now and in the coming months.
A bright spot for the economy and the hotel industry is the increased consumer confidence and sentiment which among other things has led to strong demand for guest rooms. This strong demand is expected to continue through the rest of the summer and into the fall with heavy tourist demand through August and the kick-off of the fall conference season after Labor Day.
By the Numbers
Hotel projects under construction have experienced modest quarter over quarter growth over the past year and currently stand at 1,062 projects and 141,681 rooms, up 10 percent and 8 percent year over year, respectively. Projects scheduled to start construction in the next 12 months saw an 11 percent increase in projects and 12 percent increase in rooms year over year, to stand at 2,232 projects and 260,595 rooms at the close of the second quarter. This increase highlights the fact that projects are progressing through the planning process and developers are sourcing funding to get “into the ground.” Year-over-year project counts in the early planning stage changed minimally and ended Q2 with 2,278 projects and 257,785 rooms. The second quarter, however, marks the 10th consecutive quarter that the number of rooms in early planning has been over 200,000.
Upscale and upper-midscale new-construction hotels dominated the pipeline at the end of the quarter, accounting for 62 percent of the projects and 57 percent of the rooms in the total U.S. construction pipeline. These two chain scales also represent 63 percent of the projects and 57 percent of the rooms anticipated to open through year-end 2023 and are expected to have the highest guest room growth rates through 2025.
Announced renovations and brand conversions, combined, reached record high project counts over the last four quarters, accounting for 1,939 projects and 253,473 rooms, with upscale, upper midscale, and economy brands accounting for the majority of these projects at the end of 2023’s second quarter.
Extended-stay hotel projects have also been on the rise in the U.S., increasing consecutively over the last eight quarters. At the Q2 close, there were 2,083 extended-stay projects, with 214,557 rooms in the U.S. hotel construction pipeline. Extended-stay projects account for 32 percent of projects under construction in the total pipeline, 42 percent of projects scheduled to start construction in the next 12 months, and 36 percent of the projects in early planning across the U.S.
In 2022, 130 extended-stay hotels opened, adding 13,647 rooms to the U.S. supply. For 2023, 180 extended-stay projects and 18,713 rooms are expected to open. In 2024, 236 projects and 24,281 rooms, and in 2025, 319 projects and 32,798 rooms are forecast to open in the extended-stay segment. The extended stay segment is growing at 2.5 to 3.5 times the actual and forecasted industry growth rates from 2022-2025.
For the entire U.S., during the first and second quarters, 224 new hotels with 27,194 rooms opened. LE is forecasting another 384 projects and 48,607 rooms to open in 2023 for a total of 608 new hotels and 75,801 rooms by year-end. This represents a 1.4 percent increase in new supply for 2023. The total year-end forecast for 2023 represents a 22 percent year-over-year increase over the number of new hotels that opened in 2022, which stood at 475 hotels and 56,157 rooms.
In 2024, 700 new hotel projects with 79,422 rooms are expected to open for another 1.4 percent increase in new supply growth. LE analysts expect 808 projects and 87,462 rooms to open in 2025 for a 1.5 percent increase in new supply.