5 trends in the US hotel pipeline
29 AUGUST 2014 6:14 AM
Despite a relatively low forecast for hotel supply growth in the U.S., some markets, segments and brands have robust development pipelines.
NASHVILLE, Tennessee—While hotel supply growth in the United States is forecast to be 1% this year and 1.3% in 2015, it’s important to understand the breadth and makeup of the industry’s development pipeline, Steve Hood, senior VP of research at STR, told an audience at the 6th annual Hotel Data Conference hosted by STR and Hotel News Now. STR is the parent company of HNN.
“Supply matters because it is the denominator in many industry metrics,” Hood said during a presentation titled “Pipeline in motion: Where are hotels being built?” He explained that occupancy is calculated by dividing demand by supply, and revenue per available room is a function of both revenue and supply metrics.
Here are five takeaways on the past and future characteristics of the U.S. hotel pipeline:
1. Construction activity is picking up
During July, 43.5% more rooms were in construction in the U.S. than in July 2013, Hood said. The number of rooms under contract, which includes projects in the in construction, final planning and planning stages, was up 12.3%.
While the supply situation has been stable the past couple of years, Hood said the industry has a tendency to increase development as the economy enters a downward period, which exacerbates the gaps between supply and demand and the effects on rates and revenues.
2. Supply growth varies by scale, location and type
Since 1988, the U.S. hotel industry has grown from about 3 million rooms to nearly 5 million rooms, a compound annual growth rate of 1.9%.
Growth has been more acute in certain segments of the market, locations and property sizes and types. The number of rooms in the upscale segment has increased 428% in the past 27 years, followed by a 204% increase in luxury rooms and a 152% rise in the number of upper-midscale rooms.
Rooms in suburban locations have increased 90%, followed by interstate (+80%), airport (+70%) and small town locations (+59%). The largest growth has been in hotels with between 75 and 149 rooms (+156%). The extended-stay segment has increased its supply by 2,000%, followed by all-suites properties, which have increased in rooms by 350%.
3. Openings, closings off considerably from peaks
Since 1980, there have been three years—1985, 1998 and 2008—in which hotel openings surged. The peak year for hotel openings was 1998, when 1,754 properties opened.
With 388 and 434 openings, respectively, 2011 and 2012 were among the years with the fewest hotels to open. So far in 2014, 270 properties have debuted.
During 2009 an average of between 12,000 and 13,000 rooms opened each month. During 2013 and 2014, the average number of monthly room openings had declined to between 4,000 and 5,000.
Hotel closings reached a peak in 2005 when 844 properties closed their doors. Hotel closings have declined in recent years, with 170 in 2012, 162 last year and 78 so far in 2014.
4. Holiday Inn Express leads room openings
In the past five years, Holiday Inn Express has led the industry in room openings with nearly 20,000 rooms. Other brands in the top five in room openings were Hampton Inn & Suites, Courtyard by Marriott, Hilton Garden Inn and Hampton Inn.
Among luxury and upper-upscale chains, JW Marriott led with nearly 4,000 room openings, followed by Embassy Suites and Marriott International’s Autograph Collection.
While Hampton Inn & Suites is the brand with the most rooms in construction, Holiday Inn Express leads in rooms under contract with more than 25,000 units.
The New York City market has had the most rooms to open in the past five years as well as in the past two years and has the most rooms in construction. However, Austin, Texas, has the most rooms under contract as a percent of existing supply (25.4%).
5. New York City openings to hit new highs
Given the intense hotel development in New York City, Hood dove deeper into the market’s pipeline dynamics.
New York City has three times the number of rooms in construction as the next market, Houston. The more than 25,000 rooms under contract in New York City represent 23.6% of existing supply.
Hood said sometime in 2016, New York City should reach a peak of more than 900 rooms opening each month, significantly higher than a previous peak in 2010 when about 550 rooms opened each month.