First quarter results show that the total U.S. pipeline has begun a modest recovery off the cyclical bottom established just a year ago in the first quarter of 2012. The improvement is a result of increases in both new project announcements into the pipeline and in construction starts. These metrics impact the early two stages of the pipeline. Projects currently under construction are up 25 percent year-over-year and those scheduled to start construction in the next 12 months are up by 22 percent.
At the end of the first quarter of 2013 the total construction pipeline stood at 2,851 projects (355,176 rooms). That’s up a respective 5 and 7 percent year-over-year from 2,720 projects (331,129 rooms) in the first quarter of 2012, which was the lowest pipeline total since 2004.
The impetus for growth was improved developer sentiment brought about by the gradually improving economy’s ability to successfully absorb the sequestration budget cuts and the tax increases of early 2013. Both were heavily trumpeted last summer and fall as potentially creating a serious economic reversal. Their absorption occurred with hardly a ripple and the gloom lifted. Steadily improving economic trend lines continue onward.
Annualized new project announcements have been trending upward for six quarters. Since most new projects early in the cycle are select service and smaller than 200 rooms, they bypass early planning all together and enter the pipeline in the “scheduled to start in the next 12 months” stage and then progress rapidly ahead toward construction.
Annualized construction starts bottomed in the first quarter of 2011 and have since been trending upward for eight quarters. In early 2012 the pace quickened as projects previously stalled in the pipeline, because of economic uncertainty, began to move toward construction. Later in 2012, projects scheduled to start construction also progressed forward at a slightly faster pace as fears about economic uncertainty lessened.
New hotel openings peaked in 2008 and began a three-year decline, bottoming in 2011 at 346 hotels (37,193 rooms), down a whopping 75 percent by both projects and rooms from the 2008 peak.
LE’s forecast for new openings stands at 501 hotels (55,308 rooms) in 2013 and 602 hotels (68,188 rooms) in 2014 and will result in a new supply increase of just 1.1 percent and 1.4 percent respectively each year. Like so many economic and pipeline metrics it’s an upward ticking trend line but rather modest. It indicates that occupancy and guestroom pricing have a few solid growth years ahead before new supply creates any serious headwinds.
Looking ahead, expect more of the same: modestly improving economic trend lines, hotel operating stats, and hotel construction metrics as the recovery continues to unfold. The pace of growth will be slower than hoped for. It’s going to be slow and steady—good but not great.
Patrick “JP” Ford is a senior vice president of Lodging Econometrics.
