NASHVILLE, Tennessee — Hotel developers still want to build hotels, but practical barriers such as financing and the availability of labor are keeping hotel construction noticeably lower than pre-pandemic levels.
An overview of CoStar hotel pipeline data at the 2023 Hotel Data Conference highlighted the fact that projects in both the planning and final planning stages have surpassed levels in 2019, but actual construction is down more than 25% from that period.
"With interest rates and outside pressures, it's become a lot more expensive to move projects from final planning and into construction," said Robert Kelly, STR sales executive, during the "Make Pipeline Data Actionable" session.
Kelly said that nearly all phases of the pipeline are back to pre-pandemic norms, with only a marginal drop-off from 656,000 rooms to 633,000 rooms.
"Overall, the optimism and the sentiment moving forward is kind of similar to what we were seeing" before the pandemic, he said.
Stalling projects were enough to account for a significant decline in hotel openings from 2021 to 2022, and that is likely to continue for the balance of 2023. Across the U.S., roughly 101,000 rooms opened in 2020 and slightly more — 104,000 — opened in 2021. But that figured dropped to 69,000 in 2022 and only reached 34,000 rooms from January through August 2023.
Segmentation data paints a mixed picture. Economy hotels lead the way with 22,550 rooms in the pipeline but also represent the biggest drop in existing supply, down 7% from pre-pandemic census numbers.
Kelly said the appeal for developers of new economy hotels is clear.
"This is almost like taking out insurance against a downturn in overall economic conditions," he said.
At a market level, the hotel development pipeline is still down from 2019 in all but six of the top 25 markets. The handful of markets defying that trend are Atlanta, Phoenix, Las Vegas, Chicago, Sacramento and Raleigh/Durham/Chapel Hill.
Because of new rules severely restricting new hotel development, New York is an statistical anomaly among top 25 markets, with a construction pipeline representing 8.7% of existing hotel supply but just 3.1% in planning phases. In every other market in the top 25, hotels in planning greatly exceed actual construction. This is because most of the projects in construction in New York have been grandfathered in from before new development rules were put in place.
"New York is an obvious outlier because New York loves to be an outlier all the time," Kelly said.
On the flip side is Miami, which has projects in construction that represent a 1.5% increase over existing supply but projects in planning that represent 13.6% of existing supply.