Lodging Real Estate Trends – Executive Summary
Construction Pipeline Growth Continues at a Modest Pace.
Growth in the Pipeline remains sluggish and is likely to continue that way at least thru early 2014 as ongoing political and economic uncertainty continue to affect developer sentiment.
As of Q3 2013 the Total Construction Pipeline stands at 2,819 Projects/ 358,691 Rooms, a year-over-year (YOY) increase of just 2% by projects and 5% by rooms. Hotels Under Construction have uptrended for nine quarters and are now at 710 Projects/ 92,065 Rooms, a YOY increase of 27% for Projects and 30% for Rooms. Totals for Hotels Scheduled to Start in the Next 12 Months have increased off the bottom established in Q2 2012 and stand at 1,008 Projects/ 122,905 Rooms, a YOY increase of 17% and 22% respectively. Projects in Early Planning have been in steady decline since their peak in Q4 2010, and show a YOY decrease of 19% for Projects and 15% for Rooms.
Projects are migrating through the Pipeline towards opening at a fast clip. As is typical for the early stages of a new real estate cycle, New Project Announcements into the Pipeline (NPA’s) are smaller, free-standing prototypical units of the leading brands and are generally not part of mixed use projects that have longer timelines for approvals and financing. Once announced, they move rapidly towards construction and eventual opening.
The quickened tempo for forward migration is similar for projects already in the Pipeline but previously stalled in Early Planning. Already partially invested, and with the recovery of the broader economy and lodging industry confirmed, developers are anxious to resolve their remaining approval and financing issues necessary to get underway.
The result of both dynamics always cause Early Planning totals to reach cyclical lows in the beginning years of the new real estate cycle. This stage doesn’t replenish its projects until much later in the cycle when the economy is growing at a faster pace and financing for larger projects becomes more accessible.
Upscale and Midscale Branded Projects Dominate the Pipeline
Of the non-casino projects in the Pipeline, 79% have already chosen a brand. 30% of the projects are in the upscale category while 61% are in midscale and mostly consist of extended stay and select and limited service brands.
In the last three years, over 85% of all new openings have been branded. LE estimates that of the 586 Pipeline projects that are currently unbranded, approximately 500 to 525 will choose a brand before opening.
Three companies, with a portfolio of brands across multiple chain scales, are the clear branding leaders. After accounting for casino and unbranded projects, 27% of the remaining Pipeline rooms are branded by Hilton. Marriott follows closely with 26% and then IHG with 21%. 74% of the rooms are with these three franchise companies.
YTD through September, New York City (NYC) has the highest Average Daily Rate at $246 and highest RevPAR at $207 according to STR. At 84.3% it has the second highest Occupancy Rate. The demand growth rate YTD is 5%, outpacing supply growth of 2.6%. Having such strong operating performance, it’s no surprise that NYC also has the largest Construction Pipeline of any market in the country with 151 Projects/ 26,244 Rooms. That represents a very strong 25.6% of its existing Census of Open and Operating Hotels, second only to Austin, TX.
For the top 25 markets at the end of Q3 2013, NYC accounts for 18% of the Total Pipeline Projects and 19% of the Rooms. For the third quarter, NYC has the highest number of NPA’s into the Pipeline at 25 Projects/ 4,159 Rooms, representing 24% of the total for the top 25 markets. It also has the highest number of Construction Starts at 13 Projects/ 2,232 Rooms.
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LE’s Construction Pipeline Trend Report encapsulates all US lodging development activity, with hotel project and room counts for the Pipeline by stage (Under Construction, Starts in the Next 12 Months, Early Planning), as well as for LE’s proprietary Three-Year Forecast for New Hotel Openings with projected supply growth rates. Two years of Prior Hotel Openings and current supply counts for Open and Operating Hotels (Census) are also included.
This macro-overview is essential for assessing future supply growth for strategic planning and decision-making.
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