Click infographic to download PDF.
REPORT FROM THE U.S.—There are many variables that determine profitability in the hotel business, but perhaps the most tried-and-true factor is the balance between supply and demand. Coupled with the cyclical nature of the industry, history has shown that periods of limited supply growth lead to periods of demand and profitability.
History also shows us that hotel real-estate developers are either forgetful or not accurate predictors of the future; after a few years of enjoying steady demand, supply picks back up, and, in turn, demand begins to struggle, meaning hoteliers end up right back where they started.
Most experts suggest the hotel industry is early in the optimal part of the cycle, where supply has been rather muted for a number of years, demand has returned, and it will be at least a few years before supply gains any significant traction again.
However, as hoteliers like to plan out as far in advance as possible, it’s important to keep a close eye on the supply pipeline. Jan Freitag, senior VP of global development at STR, parent company of HotelNewsNow.com, recently pointed out the amount of hotel projects with open dates that are three years into the future has “shot up considerably.”
“Developers are eager to get back into the game after sitting on the sidelines for the last 36 months,” Freitag wrote, noting supply growth will eventually outpace demand growth, which will lead to declines in occupancy.
The above infographic—also available as a PDF—highlights key data from STR’s April hotel development pipeline research in the U.S. and attempts to illustrate the potential impact of near-term supply growth on the hotel industry. It includes basic forecast overviews and detailed data, including which markets are experiencing the most hotel construction and which brands are growing the fastest.