Hotel construction pipeline reaches six-year high

After a three-year bottoming formation, the pipeline for hotel construction has posted five consecutive quarters of double-digit year-over-year growth.

March 04, 2015 |
Hotel construction pipeline reaches six-year high

The number of units under construction is up 37% by projects and 34% by rooms, according to Lodging Econometrics. Photo: Abdul-Jawad Elhusuni via Wikimedia Commons

Lodging Econometrics reports that with 3,645 projects (totaling 460,551 rooms), the 2014 total U.S. lodging construction pipeline stands at its highest level in six years.

After a three-year bottoming formation, the pipeline has now posted five consecutive quarters of double-digit year-over-year (YOY) growth. In both the third and fourth quarters, increases were particularly impressive, exceeding 20%.

Although the breakout might appear robust, pipeline totals are still a long way from the peak of 5,438 projects/718,387 rooms set in 2007.

Projects under construction, the most important predictor of near-term supply growth, has catapulted forward to 1,086 projects/136,442 rooms—the highest level in more than five years. The number of units under construction is up 37% by projects and 34% by rooms (YOY).

 

 

Projects scheduled to start construction in the next 12 months have risen strongly, to 1,351 projects/160,061 rooms, up 17% and 13% YOY, respectively.

The growing number of projects in early planning is only just beginning. The cyclical bottom for projects in early planning just occurred in the second quarter of 2014. It bounced back smartly in the second half of the year, adding 221 projects, and ended 2014 at 1,208 projects/164,048 rooms.

Projects in early planning directly influence the number of hotels that will open three to five years outward. Projects that enter the pipeline in early planning are generally larger hotels in downtown or resort locations. Most are upscale select-service projects, while others are upper upscale and luxury full-service hotels that are frequently part of mixed-use developments.

Planning and permitting these larger, more complex projects is typically more protracted and also comes with longer construction periods. These projects generally open near the end of a real estate cycle, often times after the cycle has already peaked and begun to decline. 

Project counts in early planning are expected to spurt forward over the next two to three years and make significant additions to new supply towards the end of the decade.

Overlay Init