Lodging Real Estate Trends – Executive Summary
Construction Pipeline Recovery Continues to Unfold.
First quarter results show that the Total Pipeline has begun a modest recovery off the cyclical bottom established just a year ago in Q1 2012. The improvement is a result of increases in both New Project Announcements into the Pipeline (NPA’s) and by Construction Starts – metrics which impact the early two stages of the Pipeline: projects Under Construction where rooms are up 25% Year Over Year (YoY) and those Scheduled to Start Construction in the Next 12 Months, up by 22%.
At the end of Q1 2013 the total Construction Pipeline stood at 2,851 projects/ 355,176 rooms. That’s up a respective 5 and 7% YoY over the 2,720 projects/ 331,129 rooms in Q1 2012, which is the lowest Pipeline total recorded 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 having potential for creating a serious economic reversal. Their absorption occurred with hardly a ripple and the gloom lifted. Steadily improving economic trend lines continue onward.
NPA’s and Construction Starts Are Telling
Annualized NPA’s have been trending upward for 6 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 forward towards construction.
Annualized Construction Starts bottomed in Q1 2011 and have since been trending upward for 8 quarters. In early 2012 the pace quickened as projects previously stalled in the Pipeline, because of economic uncertainty, began to move towards construction. Later in 2012, those projects Scheduled to Start in the Next 12 Months stage also progressed forward at a slightly faster pace as fears about economic uncertainty lessened
LE’s Forecast for New Hotel Openings
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% 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% and 1.4% 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 guest room pricing have a few solid growth years ahead before new supply creates any serious headwinds.
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!
- Marriott International has the most active Pipeline with 588 projects/ 75,084 rooms. The Courtyard by Marriott, Residence Inn and Fairfield Inn brands account for 404 or 69% of all projects in their Pipeline.
- Hilton Worldwide has the second largest Pipeline with 520 projects/ 60,051 rooms. Hilton’s focus is in on both mid-market and high-end brands. 62% or 323 of its projects are with Hampton Inn & Suites and Home2 Suites, while 31% or 162 hotels are with the upscale Hilton Garden Inn and Homewood Suite brands.
- InterContinental’s Pipeline consists of 494 projects/ 50,580 rooms. 69% or 340 of its projects are with Holiday Inn and Holiday Inn Express.
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it’s invaluable for strategic planning & decision-making
LE’s Construction Pipeline Trend Report encapsulates all US lodging development activity, with hotel project and room counts for the Pipeline by stage (Under Construction, Starts in the Next 12 Months, Early Planning), as well as for LE’s proprietary Three-Year Forecast for New Hotel Openings with projected supply growth rates. Two years of Prior Hotel Openings and current supply counts for Open and Operating Hotels (Census) are also included.
This macro-overview is essential for assessing future supply growth for strategic planning and decision-making.
To order an annual subscription to LE’s Quarterly Construction Pipeline Trend Report for the United States, please call us at +1 603-431-8740, ext. 25 or email firstname.lastname@example.org for more information.