US hotel construction remains robust
12 August 2020
Construction for US hotels remains strong through the first half of 2020, despite effects of the Covid-19 pandemic on travel and the economy, according to analysts from Lodging Econometrics (LE), a global real estate intelligence firm.
The total US hotel construction pipeline included 5,582 projects and 687,801 rooms at the end of the second quarter of this year, the report states. That shows a drop of 1% year over year.
There are currently 1,1771 projects/235,467 rooms under construction, an increase of 3% and 1% respectively, year over year.
Despite some project cancellations, postponements and delays, there has been minimal impact on the US construction pipeline. Contrary to what is being experienced with hotel operations, the pipeline remains robust as interest rates are at all-time lows, reports indicate.
For reference, the total global construction pipeline for hotels was reported in September 2019 to increase to a record high of 14,051 projects, a 9% increase year over year, according to LE.
That report examined developments in 176 countries worldwide. It found that, with the exception of Latin America, all regions of the globe either continued to set record high pipeline counts or have already settled into topping-out formations amid concerns of a worldwide economic slowdown.
Currently, in the age of Covid-19, developers with projects under construction are still experiencing some opening delays. However, projects continue to move forward, albeit with extended timelines. As was the case at the end of the first quarter, developers with hotels scheduled to start construction in the next 12 months continue to monitor current events and make adjustments to their construction start and opening dates, LE states.
During the first half of 2020, 313 new hotels with 36,992 rooms debuted in the US and 81 new projects with 56,823 rooms were announced; 169 new project announcements and 20,359 rooms taking place in the second quarter.
With franchise development staff largely working from home, nonessential travel halted, and with the ongoing pandemic, new development deal signings have slowed. This has resulted in a 53% decrease in new project announcements compared to the second quarter of 2019 when 359 hotels with 44,895 rooms were recorded.
”With the arrival of summer, the country has begun to see an uptick in domestic leisure travel,” LE states. ”As a result, more hotels are re-opening, and many others have begun to move up renovation plans and/or are repositioning their property with a brand conversion. In the first half of 2020, LE recorded 1,465 active renovation projects affecting 314,043 rooms and 1,196 active conversion projects for 136,110 rooms throughout the US.”
Despite the impact COVID-19 has had on operating performance, development in the lodging industry continues. In the first half of 2020, Dallas recorded the highest count of new projects announced into the pipeline with 18 hotels and 2,018 rooms. Washington, D.C. followed with 14 hotels and 1,978 rooms, then Phoenix with 13 hotels and 1,397 rooms, Miami with 10 hotels and 2,472 rooms and the Florida Panhandle with 9 hotels and 1,178 rooms.
As of the close of H1, LE’s top five U.S. markets with the largest total hotel construction pipelines were Los Angeles, leading for the fourth consecutive quarter with 163 projects and 27,415 rooms; followed by Dallas with 158 hotels and 19,314 rooms; New York City with 151 hotels and 26,302 rooms; Atlanta with 135 hotels and 18,634 rooms; and Houston with 122 hotels 12,486 rooms.
Despite these top five markets being located in states that have been hit hard by COVID-19, combined, they still account for 15 percent of the rooms in the total U.S. pipeline and, with the exception of Houston, have pipelines that remain steady and primarily unchanged quarter-over-quarter.
New York City continues to have the greatest number of projects under construction, with 106 hotels and 18,354 rooms underway. Los Angeles follows with 48 hotels and 8,070 rooms, and then Atlanta with 48 hotels 6,604 rooms, Dallas with 46 hotels and 5,344 rooms, and Nashville with 37 hotels and 6,597 rooms. These five markets collectively account for nearly 20 percent of the total number of rooms currently under construction in the U.S.
Time to Upgrade
According to LE’s research, many hotel owners who have capital on hand are taking this opportunity of decreased demand to upgrade and renovate their hotels or redefine their hotels with a brand conversion. In the second quarter of 2020, LE recorded a combined renovation and conversion total of 1,276 active projects with 217,865 rooms for the U.S. The markets with the largest combined number of renovations and conversions are Chicago with 28 hotels and 4,717 rooms; Los Angeles with 26 hotels and 4,548 rooms; New York City with 22 hotels and 8,817 rooms; Washington, D.C., with 21 hotels and 4,850 rooms; and Atlanta with 19 hotels and 3,273 rooms