According to the Q2 2023 United States Construction Pipeline Trend Report by Lodging Econometrics (LE), at the close of the second quarter, the hotel construction pipeline stood at 5,572 projects/660,061 rooms, with projects up 7 percent year over year (YOY) and rooms up 6 percent YOY.
The construction pipeline grew incrementally quarter over quarter (QOQ) as developers and franchise companies pushed through short-term challenges while envisioning long-term prospects. Inflation, higher interest, rates, and the general “wait and see” attitude of developers prevailed in the economy; however, developers believed in the strength of the economy long-term as witnessed by the continued growth in the pipeline. At the end of Q2, the total pipeline was only 5 percent from its all-time peak in terms of projects. Some headwinds remain, but hotel developers are locking down prime locations for development in the coming months.
A bright spot for the economy and the hotel industry in Q2 2023 was the increased consumer confidence and sentiment, which, among other things, led to strong demand for guestrooms. This strong demand is expected to continue through the rest of the summer and into the fall with heavy tourist demand through August and the kick-off of the fall conference season after Labor Day.
Projects under construction experienced modest QOQ growth over the past year and stood at 1,062 projects/141,681 rooms in Q2 2023, 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 a 12 percent increase in rooms YOY, which stood at 2,232 projects/260,595 rooms at the close of the second quarter. This increase highlighted the fact that projects are progressing through the planning process and developers are sourcing funding to get “into the ground.” YOY project counts in the early planning stage changed minimally and ended Q2 2023 with 2,278 projects/257,785 rooms. The second quarter, however, marks the tenth consecutive quarter that the number of rooms in early planning has been over 200,000.
Upscale and upper midscale new construction projects dominated the pipeline in Q2 2023, 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 57 percent of the rooms anticipated to open through year-end 2023 and are expected to have the highest guestroom growth rates through 2025.
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 Q2 2023.
Extended-stay hotel projects have also been on the rise in the United States, increasing consecutively over the last eight quarters. At the Q2 2023 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 United States. In 2022, 130 extended-stay hotels opened, adding 13,647 rooms to the U.S. supply. For 2023, 180 extended-stay projects/18,713 rooms are expected to open. In 2024, 236 projects/24,281 rooms, and in 2025, 319 projects/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.
For the United States, during the first and second quarters, 224 new hotels with 27,194 rooms opened. LE is forecasting another 384 projects/48,607 rooms to open in 2023 for a total of 608 new hotels/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 YOY increase over the number of new hotels that opened in 2022, which stood at 475 hotels/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/87,462 rooms to open in 2025 for a 1.5 percent increase in new supply.
