LE: U.S. construction pipeline posts steady quarter-over-quarter growth

THE U.S. HOTEL construction pipeline stands at 5,572 projects with 660,061 rooms by the end of second quarter, registering a year-over-year growth of 7 percent for projects and 6 percent for rooms, according to Lodging Econometrics' Q2 2023 United States Construction Pipeline Trend Report.

As of the end of the second quarter, the total pipeline is 5 percent away from reaching its all-time peak in terms of projects. The construction pipeline showed incremental quarter-over-quarter growth, with developers and franchise companies overcoming short-term challenges and maintaining a positive long-term outlook.

“While some challenges persist, hotel developers are actively securing prime locations for current and future development,” LE said. “Despite recent economic concerns such as inflation and higher interest rates, developers remain confident in the economy's strength, leading to continued pipeline growth.”

Slow but steady

Projects under construction have experienced modest quarter-over-quarter growth over the past year and currently stand at 1,062 projects with 141,681 rooms, up 10 percent and 8 percent YOY, respectively.

Projects scheduled to start construction in the next 12 months saw an 11 percent increase in projects and 12 percent increase in rooms year-over-year, to stand at 2,232 projects with 260,595 rooms at the close of the second quarter.

Year-over-year project counts in the early planning stage changed minimally and ended the second quarter with 2,278 projects with 257,785 rooms. The second quarter, however, marks the 10th consecutive quarter that the number of rooms in early planning has been over 200,000, LE said.

The upper hand 

Upscale and upper midscale new construction projects dominate the pipeline at the second quarter, accounting for 62 percent of the projects and 57 percent of the rooms in the total U.S. construction pipeline.

These two chain scales also represent 63 percent of the projects and 57mpercent of the rooms anticipated to open through year-end 2023 and are expected to have the highest guest room growth rates through 2025, the report said.

Announced renovations and brand conversions, combined, reached record high project counts over the last four quarters, accounting for 1,939 projects/253,473 rooms, with upscale, upper midscale, and economy brands accounting for the majority of these projects at the end of 2023’s second quarter.

Extended-stay gaining momentum

According to LE, extended-stay hotel projects have also been on the rise in the U.S., increasing consecutively over the last eight quarters. At the quarter’s close, there were 2,083 extended-stay projects, with 214,557 rooms in the U.S. hotel construction pipeline.

Extended-stay projects account for 32 percent of projects under construction in the total pipeline, 42 percent of projects scheduled to start construction in the next 12 months, and 36 percent of the projects in early planning across the U.S.

In 2022, 130 extended-stay hotels opened, adding 13,647 rooms to the U.S. supply. For 2023, 180 extended-stay projects with 18,713 rooms are expected to open. In 2024, 236 projects with 24,281 rooms, and in 2025, 319 projects with 32,798 rooms are forecast to open in the extended-stay segment.

The extended stay segment is growing at 2.5 to 3.5 times the actual and forecasted industry growth rates from 2022-2025.

More than 200 new hotels debut in U.S.

For the entire U.S., during the first and second quarters, 224 new hotels with 27,194 rooms opened. LE is forecasting another 384 projects with 48,607 rooms to open in 2023 for a total of 608 new hotels with 75,801 rooms by year-end.

This represents a 1.4 percent increase in new supply for 2023. The total year-end forecast for 2023 represents a 22 percent year-over-year increase over the number of new hotels that opened in 2022, which stood at 475 hotels with 56,157 rooms.

In 2024, 700 new hotel projects with 79,422 rooms are expected to open, for another 1.4 percent increase in new supply growth. And announcing for the first time, LE analysts expect 808 projects with 87,462 rooms to open in 2025 for a 1.5 percent increase in new supply.

Meanwhile, the U.S. hotel construction pipeline grew 9 percent in both projects and rooms year-over-year, reaching 5,545 projects with 658,207 rooms at the close of the first quarter of 2023, LE said in a report in May. The top 25 markets in the U.S. also saw year-over-year growth in the hotel construction pipeline during the first quarter.