All across hospitality, occupancy is rising, interest rates are holding, and new hotels are being built.
The U.S. hotel construction pipeline was up 9% in the first quarter of 2023. At the time, there were more than 5,500 projects in various stages of development across the U.S., and most significantly, the industry saw a 38% increase year-over-year in renovation and conversion projects.
What’s interesting is not that these projects are taking place, it’s how many hoteliers are pushing for them organically.
Hoteliers have many reasons to delay or defer investing in a property improvement plan, or PIP, but a shaky economy is at the top of the list. The tumult of the past three years led brand companies to extend PIPs across their portfolios, but they are only willing to kick this particular can down the road for so long. Hoteliers know this, and today they are at the helm of reinvestment for key reasons. Here are just a few.
Time of Action
The period from March 2020 to late 2021 saw some of the lowest interest rates for new construction and renovations in recent memory. Most U.S. hotels needed access to capital to fund development, and those who could invest encountered costly material shortages and sparse access to construction labor.
While prices have not returned to pre-pandemic levels, the industry has found a healthy operating baseline. With the uptick in new activity, potential delays today come from refinements during the pre-construction stages of the process and not necessarily from material shortage.
Hotels can incur a surprising amount of wear and tear in just a few years, and operators are now taking steps to address these issues before they begin to affect guest satisfaction. Across the industry, hoteliers are embracing the opportunity to strengthen their properties with fresh eyes, courtesy of renewed investments in technology and a better understanding of the post-pandemic traveler.
Competitive Pressure
Not all demands for a renewed push for PIPs come from the brands. While brands have returned to their ways and have taken a renewed interest in ensuring each hotel is at its best quality, owners are looking at their assets to be more viable to their competitive set. The pressure to update is back and bigger than ever.
It’s easy to see why brands are often obsessed with finding data-driven advantages over one another, no matter how minute. Still, the benefits of finding the means to update a hotel during the pandemic can be seen plainly without a spreadsheet. Hoteliers who took advantage of pandemic timing for renovations have hotels that now stand out simply by being refreshed. Meanwhile, hoteliers who sat on the sidelines during the pandemic or were forced to the sidelines are looking for opportunities to catch up.
Fortunately, operators ready to build and upgrade can benefit from newly available knowledge and trends from when their projects were paused. Today’s hotels invest in more energy-efficient footprints and technology, reducing utility costs while improving visual coherence from a guest’s standpoint. For example, hotels now ensure lighting designs are consistent with the latest LED technology and are reviewing the possible use of automated building systems to controlled mechanical components.
Keeping the Pace
Hospitality has longed to return to consistency, and today’s hotel development pipeline seems to be that sought-after steady marketplace. Over time, fewer development plans have shifted from original designs, and more projects are being driven to completion across a variety of marketplaces.
There are still some trends that operators should be aware of when embarking on a new project, particularly following the confusion of the past few years. Operators should consider again the value and importance of public spaces and group business in today’s market. While business travel growth has lagged behind leisure, different groups and types of group travel continue to emerge, and hotels remain the preeminent gathering place for travelers everywhere.
There will always be delays and other challenges even as the development pipeline returns to normal and materials are more readily available than during the pandemic. Hoteliers must be ready to take advantage when the time comes to move on their PIPs.
Stephen Siegel is principal of H-CPM (Hospitality CPM).
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