Lodging Real Estate Trends – Executive Summary
Pipeline Momentum Continues.
The Construction Pipeline continued its upward trend in Q1 2014. The Total Pipeline now stands at 3,226 Projects/407,235 Rooms, up 13% and 15% respectively Year-Over-Year (YOY). The Pipeline, no longer constrained in a bottoming formation, posted a double-digit percentage increase for the second consecutive quarter.
Projects Under Construction, 885 Projects/114,337 Rooms, are up a significant 40% by Projects and 43% by Rooms YOY. Projects Scheduled to Start in the Next 12 Months, 1,327 Projects/161,748 Rooms, are up 32% by Projects and 37% by Rooms.
Early Planning dropped 17% by both Projects and Rooms YOY. This is expected during the recovery phase of a Real Estate Cycle when Pipeline growth is predominantly smaller upscale and midscale projects, which often do not enter the Pipeline in the Early Planning stage. Designs are most often prototypical and the projects generally have shorter permitting and construction timelines.
Also indicative of the recovery phase, New Project Announcements (NPAs) entering the Pipeline, 427 Projects/54,256 Rooms, are at their highest point since the bottoming in 2011 following the Great Recession. Construction Starts also hit a new cycle high point in the quarter with 213 Projects/27,741 Rooms entering the ground. Both metrics should propel forward into late decade.
Despite an unusually harsh winter and a late-starting spring which seriously braked US economic activity, the underlying economy is thought to be operating at a much-improved level. The Federal Reserve has begun to reduce its stimulus program with a net effect of making more capital available to the business sector. Accordingly, many experts forecast that GDP will be operating at a growth rate in excess of 3% by year-end.
Lending availability has improved, interest rates are low, transactions are picking up and Wall Street M&A activity is accelerating. Lodging operating stats have recovered. Average Daily Rates and Revenue Per Available Room have exceeded pre-recession heights. Occupancy and profitability are expected to reach those heights in 2014. All these improvements in growth bode well for the Pipeline’s continued recovery and acceleration forward.
Markets, Companies & Brands
Of Pipeline rooms Under Construction, 44.2% are concentrated in the largest 25 markets. There are now 18 markets with more than 20 projects in the Pipeline.
New York City has an unprecedented 180 Projects/ 30,304 Rooms in the Pipeline. More than half of those projects are already Under Construction. It has the largest Pipeline in the world and has a Pipeline Rooms to Census ratio of 28.6% meaning, that when built out its current number of open hotels will increase by nearly a third. Economic growth has exploded as the US has become an even larger “safe haven” for global investors.
With less than half the Pipeline rooms of New York, Washington follows next with 85 Projects/14,948 Rooms. Washington too is growing at a feverish pace, stimulated by a rapid expansion of businesses and consulting firms servicing various governmental agencies. Houston, with its ever- growing energy sector, has 100 projects/11,375 rooms. Los Angeles with 60 projects/11,113 Rooms and Chicago with 42 Projects/9,648 Rooms are next followed by Miami, sometimes called the economic capital of Latin America, with 54 Projects/8,998 Rooms.
Marriott has the most rooms in the Pipeline with 613 Projects/75,982 Rooms. Their Residence Inn brand with 126 Projects/16,846 Rooms leads the way with a build out to current census ratio of 22%. Hilton Worldwide is next at 623 Projects/72,530 Rooms. The Hilton Garden Inn with 104 Projects/14,488 Rooms has their largest build out to census ratio at 20%. InterContinental Hotels Group’s Holiday Inn Express has the largest project count of any brand in the Pipeline at 292 Projects/26,416 Rooms.
Best Western is a company to watch. The core brand expanded earlier to include the Upscale Best Western Premier, the Upper Midscale Best Western Plus and now, a new Midscale extended-stay prototype. The company intends to place considerably more emphasis on new construction. They recently reoriented and expanded their Development Team to aggressively grow their four Best Western products across three chain scales.
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LE’s Construction Pipeline Trend Report for the US presents an unmatched review of lodging real estate and development activity. Ideal for monitoring development growth trends, the report contains current and comprehensive views of the Construction Pipeline by Project Stage (Early Planning, Scheduled to Start in the Next 12 Months and Under Construction), LE’s Proprietary Three-Year Forecast for New Hotel Openings, current counts for Open & Operating Hotels (Census) and New Hotel Openings for the previous two years.
An LE Market Trend Report for any Individual Market will supply you with every lodging real estate fact needed about a particular market. Reports provide a summary of the Construction Pipeline as well as contain individual Hotel Records with full details on New Construction Projects, Brand Conversions, Announced Renovations, Open & Operating Hotels (Census), Distressed Hotels and Recent Transactions.
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