Hotel Construction Pipeline Optimistic

The U.S. hotel construction pipeline fell compared to a year ago, but look a little further ahead and you’ll see signs of optimism among hotel developers.

Lodging Econometrics, Portsmouth, N.H., reported 592,259 hotel rooms under construction during the third quarter, a 10 percent drop from third-quarter 2020. It said the construction pipeline “remains largely muted” due to fewer new projects launching during COVID and significant hotel openings during early 2021, which trimmed the pipeline.

“The prolonged effects of the pandemic, above-average inflation, rising interest rates and material shortages and price increases have been and will continue to be key factors in decision-making for [hotel] developers through the end of the year,” the report said.

But many hotel developers have a “long-term positive outlook,” the report noted. Projects in the early planning stage are up 25 percent year-over-year to nearly 240,000 rooms, a cyclical peak.

“Though the path to full recovery may be longer than originally expected, two main steppingstones aiding in the recovery have been the recent rise in hotel stock values as well as increases in lending activity,” the report said. “Rebounding hotel stocks and better-than-expected hotel and travel demand throughout the summer season has renewed developer sentiment.”

Lodging Econometrics noted hotel renovation and conversion activity remained steady as the third quarter closed, with conversion projects hitting a cyclical peak–just over 79,000 rooms. Renovation and conversion activity combined account for 176,305 rooms, the report said.

The report said 665 new hotels with 85,306 rooms opened in the U.S. through September. Another 221 properties with 23,026 rooms could open by year-end 2021, which would bring deliveries to 108,332 new hotel rooms for the year.

Lodging Econometrics forecasts more than 110,000 rooms could open next year and another 111,000 in 2023.