PORTSMOUTH, NH—The pipeline for US hotel construction is now fuller than it's been in six years, says Lodging Econometrics. The locally based analytics firm notes that a six-year high doesn't match the previous cycle's peak, though, and pipeline totals are still a long way from the peak of 5,438 projects and 718,387 keys set in 2007.
As it is, however, the total construction pipeline in the hotel space currently stands at 3,645 projects totaling 460,551 keys. “After a three-year bottoming formation, the pipeline has now posted five consecutive quarters of double-digit year-over-year growth,” according to LE. “In both the third and fourth quarters increases were particularly impressive, exceeding 20%.”
By category, projects under construction, the most important predictor of near-term supply growth, has zoomed ahead 37% by projects and 34% by rooms YOY. In terms of numbers, that translates to 1,086 projects and 136,442 keys, the highest level in more than five years.
The numbers of projects scheduled to start construction in the next 12 months have risen strongly to 1,351 projects and 160,061 rooms. Those figures are up 17% and 13% YOY, respectively.
Just beginning is growth in the number of projects in early planning is only just beginning. Projects in this stage of the pipeline directly nfluence the number of hotels that will open three to five years hence.
The cyclical bottom for projects in early planning just occurred in Q2 2014, says LE. It rebounded “smartly” in the second half of the year, adding 221 projects, and ended the year at 1,208 projects and 164,048 rooms.
“Projects that enter the pipeline in early planning are generally larger hotels in downtown or resort locations,” according to LE. “Most are upscale select-service projects, while others are upper upscale and luxury full-service hotels that are frequently part of mixed-use developments.”
As a rule, LE says, planning and permitting for these larger, more complex projects tends to be more protracted, and culminates with longer construction periods. These projects generally open near the end of a real estate cycle, quite often after the cycle has already peaked and begun to decline. LE predicts that project counts in early planning will “spurt forward” over the next two to three years and make significant additions to new supply toward the end of the decade.
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