OVER THE PAST few months, the U.S. hotel industry has seen a slowing in the number of new hotel projects. In the wake of the destruction left by hurricanes Harvey and Irma, developers can only expect the trend to continue.
STR today reported “incredibly low” numbers in August’s pipeline. Compared to August 2016, the total pipeline, which tallies the number of rooms in planning, final planning and in construction, increased by 8.8 percent. The number of rooms in construction increased by 12.9 percent year over year. “Those numbers are incredibly low compared with the same time last year,” said Bobby Bowers of STR.
Some industry experts attribute the trend to investors’ fear of oversupply. Another factor contributing to the slowing pace is the increasing cost of construction, mostly tied to labor costs.
As recovery efforts begin to kick in south Texas, hit by Hurricane Harvey in late August, and Florida, nailed by Hurricane Irma in early September, developers can expect costs to rise even higher and perhaps out of reach.
‘There is no guarantee that firms can perform work for the price they said they could if they don’t have the manpower to do it.’
Josh Brewer, Randolph Williamson Construction
Even before the storms struck, the U.S. construction industry was struggling to find enough skilled hourly workers to complete projects.
Josh Brewer, pre-construction manager for Randolph Williamson, a hotel contractor in Peach Tree City, Georgia, told Asian Hospitality the U.S. construction industry experienced a drain of skilled workers during the Great Recession. “When the market went soft, many labor employees left the major trades or moved to other markets looking for work. Now, those employees are either staying in those markets or finding themselves happy in their new jobs, and they aren’t coming back,” he said.
Associated General Contractors of America and Autodesk recently surveyed construction companies across the U.S. and learned seven in 10 are having difficulty finding enough skilled hourly workers.
Of the 358 markets tracked by AGC, companies in 258 of those markets said they increased hiring from July 2016 to July 2017 to meet the growing demand for their services. Looking ahead, however, 67 percent said it will be more difficult to meet their labor demands this year.
“The market isn’t used to this small of a labor force, and the employees that have stayed are demanding higher pay than what we are used to paying,” said Brewer. “This demand is driving costs further and further from what we are used to. Until the workforce is replenished, the costs will just continue to rise.”
The call on constructions crews to rebuild Houston and parts of Florida damaged by the storms will only exacerbate the problem. Moody’s reported the total value of property damaged in both storms ranges from $150 billion to $200 billion.
In the Houston metro area, between 10,000 and 20,000 construction workers will probably be needed in the next 12 months, said Rob Dietz, chief economist at the National Association of Home Builders, told Construction Dive news site.
Bowers of STR said the recovery will create the “potential for further deceleration in new [hotel] development as resources are directed to rebuilding from Hurricane Harvey and Hurricane Irma.”
The surge in activity throughout the Gulf Coast and the Southeast also is expected to push up prices for building materials, specifically lumber, PVC, drywall and roofing, Dietz said.
For hotel developers in the planning stages of a project, Brewer advised: “Get all supply vendors and sub-contractors under a contract to hold all pricing until the end date of the contract. The sub-contractors and general contractors in the market right now are no longer honoring any pricing that is past the 30-day mark.
“There is no guarantee that firms can perform work for the price they said they could if they don’t have the manpower to do it,” he said.
“We are really seeing this at the general contracting level. We don’t have the project managers or superintendents we need because of the workload. If an owner waits too long, the project has to be re-bid and the cost goes up every time.”