As travel returns, U.S. hotel construction pipeline growth follows

According to the recently released United States Construction Pipeline Trend Report from Lodging Econometrics (LE), the total U.S. construction pipeline stands at 5,220 projects/621,268 rooms at the close of 2022’s second quarter, up 9% Year-Over-Year (YOY) by projects and 4% YOY by rooms.

At Q2 ‘22, there are 965 projects/130,914 rooms currently under construction, down 17% YOY by projects and 18% YOY by rooms. Projects scheduled to start in the next 12 months, at 2,009 projects/232,163 rooms, are up 9% YOY by projects and 9% YOY by rooms. Projects and rooms in early planning reached a record high in the second quarter, standing at 2,246 projects/258,191 rooms, up 26% YOY by projects and 15% YOY by rooms. Continuing the trend seen over the past several years, the upscale and upper-midscale chain scales continue to lead the pipeline with 68% of projects concentrated in these two chain scales.

Following the substantial decline in travel during recent years, pent up demand and increased consumer sentiment and spending has led to record-high rates of travel and much improved hotel revenue over the last few months. Analysis of the hotel industry at the end of the second quarter suggests the outlook is positive and growth is expected to continue throughout 2022, albeit at a decelerated pace than initially expected. The industry’s ability to adapt to the constantly changing economic environment provides a positive outlook for hotel performance, and its eventual full recovery.

However, market volatility, persistent inflation, rising energy prices, elevated transportation costs, materials shortages, and supply chain backlogs continue to pose a challenge and slow the timeline to full recovery. Some hotels have noted a reduction in certain services and put a limit on the number of available room nights. Furthermore, although leisure travel has had a robust comeback in 2022, business travel is only slowly returning. To counterbalance the occupancy lag and capitalize on the strong leisure recovery, room rates have significantly increased with Average Daily Rates considerably higher than those recorded in 2019.

Even though the U.S. and the hotel industry are facing some economic challenges that can be expected to continue into the near future, corporate and personal balance sheets are reasonably strong, the U.S. banking system is healthy, and the planning of new hotel projects continues. Hotel investors and developers are still eager to move forward on projects and are being more mindful when approaching a deal. There were a total of 428 new projects accounting for 47,034 rooms announced into the pipeline in the second quarter of 2022. This number more than doubled YOY when compared to the second quarter of 2021 when 202 new hotel projects/25,653 rooms were recorded. Also of note, at Q2 2022, there are a total of 1,889 projects/237,420 rooms in the renovation or conversion pipeline in the U.S., with project and room conversions reaching an all-time high and increasing 66% YOY by projects and 35% YOY by rooms.

During the first and second quarters of 2022, the U.S. opened 247 new hotels with 28,116 rooms. LE is forecasting another 428 projects/50,322 rooms to open during 2022 for a total of 675 projects/78,438 rooms by year-end, representing a 1.4% increase in new supply. 733 projects/87,253 rooms are expected to open in 2023, representing a 1.5% increase in new supply. And, announcing for the first time, is LE’s new hotel openings forecast for 2024, for which analysts expect 848 projects/93,581 rooms to open with a 1.6% new supply increase.