There are 1,449 projects or 190,760 rooms in construction in the March pipeline, according to STR. That is near the room-construction peak charted in 2007, but there is a slowing in new-build constructions that could be caused by climbing construction costs, a shortage of skilled labor and increasing interest rates.

THE U.S. HOTEL industry pipeline is nearing the room-construction peak charted in 2007 and more than half of those projects are limited service projects in lower-tiered segments.
But the industry is seeing a slowing of sorts in new-build projects, and that could be caused by a number of factors, including climbing construction costs, a dearth of skilled tradespeople and fear that the cost of debt is increasing as the Fed hikes interest rates.
Pipeline reports from both STR and Lodging Econometrics show a slowing in the number of projects in construction.
STR reported its March pipeline research shows 1,449 projects or 190,760 rooms in construction. Bobby Bowers, senior vice president of operations at STR, said the number is “actually down a bit” from February. It is still a 24.4 percent increase over March 2016. The room peak in 2007 was 211,000 rooms, Bowers said.
Lodging Econometrics reported in March the end of 2016 saw an 11-percent decrease of hotels under construction compared to the end of 2015. Lodging Econometrics suggested the coming interest rate hikes are causing developers to get shovels in the ground faster. The Fed has raised interest rates twice in the past four months and economists expect another two hikes before the end of the year, bringing the total increase to a full percent.
“Almost half (47.6 percent) of hotel room construction activity today is occurring in the major markets,” Bowers said. “And because room construction in 20 of those markets represents 3 percent or more of their respective existing supply, it’s no surprise to see muted performance growth.”
The largest generator of new rooms is New York City. With 15,900 rooms under construction, the market claims 8 percent of the total new-build pipeline.
In the commercial-building sector, the cost of materials, especially steel, has stalled the start of some projects throughout the U.S. while labor costs are proving to be a challenge. ForConstructionPros.com reports companies expect to see an increase of 5.4 percent in labor costs in the first half of this year.
Alpesh Patel of Baywood Hotels in Greenbelt, Maryland, participating in a panel discussion this week about the pipeline during the AAHOA convention in San Antonio, Texas, said escalating labor costs are impacting his company’s development plans in urban markets.
Also on the panel was Justin Knight of Apple REIT, who echoed Patel. He noted most of the REIT’s hotels are in suburban markets.
While the cost of materials increased 6.6 percent from December to January, companies expect the prices to level off this year as there is no shortage of supply, reported ForConstructionPros.com.
As for hotel projects waiting in the wings, STR reports, 571,311 rooms in 4,721 hotel projects were under contract in March, a 14.4 percent increase over March 2015.
Bruce Ford of Lodging Econometrics, also on the AAHOA panel, said limited service hotels in the economy, midscale and upper midscale chain-scale segments account for half of the hotels in the construction pipeline, totaling 130,000 rooms.

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