Pipeline remains steady, 2025 supply growth forecast is 1.5 per cent

The construction pipeline grew incrementally quarter-over-quarter (QOQ), as developers and franchise companies push through short-term challenges while envisioning long-term prospects. Inflation, higher interest, rates and the general “wait and see” attitude of developers have prevailed in the economy in recent months; however, developers continue to believe in the strength of the economy long-term as witnessed by the continued growth in the pipeline. At the end of Q2, the total pipeline is only 5 per cent from its all-time peak in terms of projects. Certainly, some headwinds remain, but hotel developers are locking down prime locations for development now and in the coming months.

A bright spot for the economy and the hotel industry is the increased consumer confidence and sentiment which among other things has led to strong demand for guest rooms. This strong demand is expected to continue through the rest of the summer and into the fall with heavy tourist demand through August and the kick-off of the fall conference season after Labor Day.

Projects under construction have experienced modest QOQ growth over the past year and currently stand at 1,062 projects/141,681 rooms, up 10 per cent and 8 per cent YOY, respectively. Projects scheduled to start construction in the next 12 months saw an 11 per cent increase in projects and 12 per cent increase in rooms YOY, to stand at 2,232 projects/260,595 rooms at the close of the second quarter. This increase highlights the fact that projects are progressing through the planning process and developers are sourcing funding to get “into the ground”. Year-over-year project counts in the early planning stage changed minimally and ended Q2 ’23 with 2,278 projects/257,785 rooms. The second quarter, however, marks the tenth consecutive quarter that the number of rooms in early planning has been over 200,000.

Upscale and upper midscale new construction projects dominate the pipeline at Q2, accounting for 62 per cent of the projects and 57 per cent of the rooms in the total U.S. construction pipeline. These two chain scales also represent 63 per cent of the projects, and 57 per cent of the rooms anticipated to open through year-end 2023–and are expected to have the highest guest room growth rates through 2025.

Announced renovations and brand conversions, combined, reached record high project counts over the last four quarters, accounting for 1,939 projects/253,473 rooms, with upscale, upper midscale, and economy brands accounting for the majority of these projects at the end of 2023’s second quarter.

Extended-stay hotel projects have also been on the rise in the U.S., increasing consecutively over the last eight quarters. At the Q2 close, there were 2,083 extended-stay projects, with 214,557 rooms in the U.S. hotel construction pipeline. Extended-stay projects account for 32 per cent of projects under construction in the total pipeline, 42 per cent of projects scheduled to start construction in the next 12 months, and 36 per cent of the projects in early planning across the U.S. In 2022, 130 extended-stay hotels opened, adding 13,647 rooms to the U.S. supply. For 2023, 180 extended-stay projects/18,713 rooms are expected to open. In 2024, 236 projects/24,281 rooms, and in 2025, 319 projects/32,798 rooms are forecast to open in the extended-stay segment. The extended stay segment is growing at 2.5 to 3.5 times the actual and forecasted industry growth rates from 2022-2025.

For the entire U.S., during the first and second quarters, 224 new hotels with 27,194 rooms opened. LE is forecasting another 384 projects/48,607 rooms to open in 2023 for a total of 608 new hotels/75,801 rooms by year-end. This represents a 1.4 per cent increase in new supply for 2023. The total year-end forecast for 2023 represents a 22 per cent YOY increase over the number of new hotels that opened in 2022, which stood at 475 hotels/56,157 rooms. In 2024, 700 new hotel projects with 79,422 rooms are expected to open, for another 1.4 per cent increase in new supply growth. And announcing for the first time, LE analysts expect 808 projects/87,462 rooms to open in 2025 for a 1.5 per cent increase in new supply.