Pipeline Remains Steady; 2025 Supply Growth Forecast is 1.5%

According to the Q2 2023 United States Construction Pipeline Trend Report by Lodging Econometrics (LE), at the close of the second quarter, the hotel construction pipeline stands at 5,572 projects/660,061 rooms, with projects up 7% year-over-year (YOY) and rooms up 6% YOY.

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% from its all-time peak in terms of projects. Certainly, some head winds 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% and 8% YOY, respectively. Projects scheduled to start construction in the next 12 months saw an 11% increase in projects and 12% 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% of the projects and 57% of the rooms in the total U.S. construction pipeline. These two chain scales also represent 63% of the projects and 57% 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% of projects under construction in the total pipeline, 42% of projects scheduled to start construction in the next 12 months, and 36% 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% increase in new supply for 2023. The total year-end forecast for 2023 represents a 22% 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% 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% increase in new supply.

Three Franchise Companies in the U.S. Dominate the Hotel Construction Pipeline and Openings Through 2025

According to the most recent United States Construction Pipeline Trend Report from Lodging Econometrics (LE), in the second quarter of 2023, the franchise companies with the largest pipelines in the U.S. are Marriott International (Marriott) with 1,511 projects/181,632 rooms, Hilton Worldwide (Hilton) with record high project and room counts of 1,470 projects/164,848 rooms, and IHG Hotels & Resorts (IHG) with 811 projects/80,516 rooms. These three franchise companies comprise 68% of all projects in the total U.S. hotel construction pipeline.

The leading brands for each of these three companies are Home2 Suites by Hilton with record-highs of 565 projects/57,970 rooms, IHG’s Holiday Inn Express with 306 projects/28,756 rooms, and Marriott’s TownePlace Suites with all-time-high project and room counts of 345 projects/32,190 rooms.

Other prominent brands in the pipeline for these franchise companies are Marriott’s Residence Inn with a record-high 258 projects with 31,119 rooms; Hampton by Hilton with 292 projects/29,796 rooms; and IHG’s Avid Hotel with 132 projects/11,102 rooms.

In the second quarter of 2023, LE recorded a record-high 1,085 conversion projects, accounting for 106,408 rooms. Of these conversion totals, Hilton leads with 142 conversion projects/17,468 rooms. Following Hilton, the franchise companies with the largest number of conversion projects are G6 Hospitality, Marriott, Best Western Hotels & Resorts, and IHG. These five franchise companies combined account for 47% of the conversion projects across the U.S. at the Q2 close.

Through Q2, 60% of the new hotels that opened in the U.S. were branded Hilton, Marriott, or IHG. Hilton opened 57 new hotels/6,398 rooms, Marriott opened 56 new hotels/7,309 rooms, and IHG opened 22 new hotels/2,304 rooms.

Top brands with the largest number of openings in the first and second quarters of 2023 are Home2 Suites by Hilton with 19 new hotels/1,956 rooms, Hampton by Hilton with 19 new hotels/1,977 rooms, and Marriott’s SpringHill Suites with 9 new hotels/1,158 rooms.

LE anticipates that Hilton will open the largest number of new hotels in 2023 with 145 new hotel projects and 17,793 rooms for a growth rate of 2.3%. Next, Marriott is forecast to open 144 hotels/18,206 rooms for a growth rate of 2.0%, followed by IHG with 84 hotels/9,416 rooms for a growth rate of 2.2%.

In 2024, LE forecasts that Marriott will lead new hotel openings with 192 new hotels/22,898 rooms for a 2.5% growth rate. Also, with a growth rate of 2.5% in 2024, Hilton is anticipated to open 176 new hotels/with 20,004 rooms, and IHG with 111 new hotels/10,924 rooms.

In 2025, LE analysts predict Marriott will open 256 new hotels/29,572 rooms for a 3.1% growth rate, IHG is projected to open 202 new hotels/19,390 rooms for a 4.4% growth rate, and Hilton is forecast to open 139 new hotels/14,780 rooms in 2025, for a 1.8% growth rate.

Atlanta and Dallas Among Top Markets for New Hotel Openings Through 2025

According to the United States Construction Pipeline Trend Report by Lodging Econometrics (LE) for Q2 2023, the five markets with the largest hotel construction pipelines are Dallas with a record-high 184 projects/21,501 rooms, Atlanta with 141 projects/17,993 rooms, Phoenix with 119 projects/16,107 rooms, Nashville with 116 projects/15,346 rooms, and Los Angeles with 112 projects/17,797 rooms.

The markets with the most projects currently under construction at the Q2 close are New York with 47 projects/8,201 rooms, and Phoenix with 29 projects/6,064 rooms. Dallas has the most projects scheduled to start in the next 12 months with 69 projects/8,045 rooms, followed by Atlanta with 66 projects/7,932 rooms, and the Inland Empire market with 48 projects/4,946 rooms. Markets with the most projects in early planning are also led by Dallas with 90 projects/10,104 rooms, Los Angeles with 52 projects/8,663 rooms, and Nashville with 51 projects/6,009 rooms.

LE recorded a combined renovation and conversion pipeline total of 1,939 projects with 253,473 rooms for the U.S. at the Q2 close. The markets with the largest combined number of renovations and conversions are Atlanta with 39 projects/4,232 rooms, Chicago with 36 projects/4,921 rooms, and Dallas with 33 projects/5,687 rooms.

At the close of the second quarter, the Inland Empire market has the largest number of new projects announced into the pipeline with 7 projects/791 rooms, followed by Tampa with 6 projects/986 rooms, and Nashville with 6 projects/803 rooms.

For the first half of 2023, the U.S. opened 224 new hotels/27,194 rooms with another 384 new hotels/48,607 rooms expected to open by year-end. Reflective of the current pipeline, L.E.’s forecast for new hotel openings will continue to rise through 2025.

At Q2, the top 25 markets in the U.S. are forecast to open 40% of the rooms expected to open by year-end. Twenty-six percent of the new hotels forecast to open between now and 2023 year-end are concentrated within ten markets. Of these ten markets, those with the greatest number of new hotels forecast to open for all of 2023 are led by New York with 42 projects/7,192 rooms, followed by the Inland Empire market with 16 projects/1,564 rooms, Austin with 14 projects/2,021 rooms, Atlanta with 14 projects/1,369 rooms, and Dallas with 13 projects/2,100 rooms.

In 2024, Atlanta is forecast to top the list of new hotel openings with 20 projects/3,198 rooms, then Phoenix with 19 projects/3,480 rooms, and Dallas with 19 projects/2,159 rooms.

At this time, in 2025, Atlanta is anticipated to again lead in new hotel openings with 24 projects/2,829 rooms expected to open, followed by Dallas with 23 projects/2,343 rooms, and the Inland Empire market with 18 projects/1,844 rooms.