According to the 2023 year-end U.S. Construction Pipeline Trend Report from Lodging Econometrics, the pipeline stands at 5,964 hotels/693,963 rooms. The pipeline hit record hotels counts at Q4, with the addition of 260 projects and 21,287 rooms over last quarter, and a 9 percent increase by projects and a 7 percent increase by rooms year-over-year. The previous project count high was Q2 2008 with 5,883 hotels.
At the close of 2023’s fourth quarter, there are 1,118 hotels/141,768 rooms under construction, up 11 percent by projects and 5 percent by rooms year over year. Hotels scheduled to start within the next 12 months stand at 2,259 hotels/261,582 rooms, up 9 percent by hotels and 11 percent by rooms year over year. Hotels and rooms in the early planning stage hit all-time highs at Q4, standing at 2,587 hotels/290,613 rooms, and up 9 percent by hotels and 4 percent by rooms year over year.
Notably, the number of combined hotel renovations and brand conversion projects in the U.S. continued its upward growth trend through the end of 2023, closing the year with record project and room counts of 2,028 hotels/303,330 rooms.
The upper midscale segment has the highest project count of all chain scales in the total U.S. construction pipeline at the Q4 close, reaching an all-time high of 2,245 hotels/218,112 rooms. The second largest is the upscale category, which has 1,445 hotels/177,999 rooms. Together, these two chain scales comprise 62 percent of all projects in the country’s total pipeline at the Q4 close.
The recent Federal Reserve signaling of three 25-basis-point interest rate cuts in 2024 and additional cuts in 2025 sends a positive but cautious outlook for U.S. hotel development in the year ahead. With the anticipation of multiple rate cuts in 2024, hotel development seems poised for constructive growth well beyond 2024, according to LE. The primary reason lies in less expensive borrowing costs, providing long-awaited relief on interest rates. This is expected to have a favorable impact not only on new construction but acquisitions, renovations and conversions as well. Despite the positive outlook, lenders continue to be vigilant, and many investors continue with a “wait and see” attitude; holding out hope for potentially deeper rate cuts. LE analysts expect this cautious, yet optimistic approach will continue through 2024, however, the analysts expect to see investors re-engaging, which, as evidenced by the pipeline numbers and record-high project counts, has already begun. LE expects lending volume to increase slowly in the first half of 2024 and then gradually pick up the pace in the second half of the year.
In 2023, the U.S. had 474 new hotels with 60,436 rooms open, a 1.1 percent growth rate in new supply, bringing the total U.S. census to 59,636 hotels with 5,655,356 rooms. In 2024, LE analysts expect the existing supply of hotels in the U.S. to increase 1.4 percent with the opening of 677 new hotels and 79,518 rooms. The LE forecast for new hotel openings shows this growth trajectory will continue through 2025, with another 799 new hotels and 85,654 rooms forecast to open by year-end 2025 and further growth anticipated for 2026 and beyond.