NASHVILLE, Tennessee — Improving hotel industry performance should help hotel supply growth return to normal levels, but as the overall economy recovers, that growth won’t be evenly spread.
During a presentation at the 14th annual Hotel Data Conference, Rico Louw, regional sales manager at STR, said the U.S. pipeline is under pressure from the U.S. economy. STR is CoStar's hospitality analytics firm.
The price of labor and construction have hindered the normal pace of the pipeline, affecting how comfortable investors are in moving forward, he said. That has led to projects remaining in the planning phase longer. Improving hotel performance, however, may encourage investors to move projects forward.
“They’re starting to think that they are missing out, and there’s a lot of FOMO there,” he said.
The Pipeline
STR’s pipeline data for June shows a 6% year-over-year increase in hotel projects in planning. However, hotel projects under contract, or confirmed, is down 7% from one year to the next.
The number of hotel rooms in construction likely hasn’t reached the lowest point yet, Louw said, and looking back at the Great Recession provides further context. It took a long time for rooms in construction to recover after that downturn.
Speed bumps slowing down the pace of construction include the cost of building and availability of labor, he said.
Select-service hotels continue to dominate U.S. construction activity, “or maybe I should say the investors are in love with select service and a good pantry,” he said.
Roughly 52% of the construction activity in the pipeline is in the upscale and upper-midscale segments. That did not change through the pandemic.
Top 25 Markets
June data shows the U.S. top 25 markets are lagging behind all other markets in the distribution of hotel projects and rooms in the pipeline, Louw said. However, the top 25 markets appear poised for a comeback, judging by the distribution of hotels in the planning phase.
“We’re seeing tremendous pickup in the top 25 markets as we learn how to live with COVID,” he said.
Hotel planning and construction is surging in Miami, Nashville, Phoenix, and Los Angeles, he said. New York is its own story with all of the hotels in construction but much fewer in planning.
STR compared June 2022 data against 2019 to see the percent change of rooms in the pipeline, he said.
Compared to June 2019, the greatest percentage change in hotel rooms in the development pipeline is in Phoenix, Norfolk/Virginia Beach, Oahu, Atlanta and Washington, D.C.
Supply Outlook
Trend lines show a big increase in hotel supply in 2021, but a return to normal supply growth heading toward 2026. The economy will determine how the pipeline breathes between phases, Louw said.
From a class perspective, the upscale and upper-midscale segments are expected to dominate the pipeline, though the luxury and upper-upscale segments have led growth this year, he said.
The supply forecast calls for a comfortable 2% growth in U.S. hotel inventory for the years ahead, he said. The top 25 markets are coming back and will be the focus of investment as they are strong destinations.
“Keep watching the top 25 markets, because they will come back and tell us the larger story that's going on in the pipeline and in the lodging industry for the U.S.,” he said.