The U.S. hotel pipeline in the fourth quarter was up 9 percent year over year with 5,964 projects in the pipeline, led by the upper midscale segment, according to a new Lodging Econometrics report. Dallas again reported the largest Q4 hotel construction pipeline among major U.S. markets with a record-high 193 projects.
The 2023 year-end U.S. hotel construction pipeline hit "record project counts" by Q4, totaling 5,964 projects and nearly 694,000 guest rooms, according to Lodging Econometrics. Projects and rooms in Q4 increased 9 percent and 7 percent year over year, respectively.
Before Q4, the previous project count record was set in the second quarter of 2008 with 5,883 projects, according to Lodging Econometrics.
In Q4, U.S. hotels under construction totaled 1,118 projects and nearly 142,000 rooms, up 11 percent and 5 percent year over year, respectively. Projects scheduled to start within the next 12 months totaled 2,259, with more than 260,000 rooms, up 9 percent and 11 percent, respectively.
For another record high, there were 2,587 projects and more than 290,000 rooms in the early planning stages of the Q4 U.S. hotel pipeline, up 9 percent and 4 percent year over year, respectively. Projects in the early planning stages in Q4 increased by 180 from the previous quarter.
Upper Midscale Leads
The upper midscale segment surpassed all other chain scales in the total U.S. construction pipeline in Q4, with a record-high 2,245 projects and more than 218,000 rooms, according to Lodging Econometrics. In second, the upscale segment reported a Q4 pipeline of 1,445 projects and nearly 178,000 rooms. The upper midscale and upscale segments combined make up 62 percent of the total Q4 pipeline, according to the report.
Additionally, combined brand conversions and hotel renovations also reported a record pipeline, with 2,028 projects and more than 303,000 rooms at the end of 2023.
The U.S. reported a 1.1 percent growth rate in "new supply," with 474 new hotels and more than 60,400 rooms open in 2023, according to Lodging Econometrics.
Looking ahead, LE's analysts expect "the existing supply of hotels in the U.S. to increase 1.4 percent" in 2024, with 677 new hotels and more than 79,500 rooms expected to open, according to the report. LE's projected "this growth trajectory will continue through 2025, with another 799 new hotels [and nearly] 85,700 rooms forecast to open by year-end 2025," according to LE. Further growth is expected to continue through "2026 and beyond," according to the report.
This optimism is buoyed by the "signaling of three 25-basis-point interest rate cuts in 2024" and 2025 by the U.S. Federal Reserve, sending a "positive but cautious outlook for U.S. hotel development in the year ahead," according to LE.
"Despite the positive outlook, lenders continue to be vigilant, and many investors continue with a 'wait and see' attitude, holding out hope for potentially deeper rate cuts," according to LE.
Dallas Dominates, Again
Quarter after quarter, Dallas continues to dominate the U.S. construction pipeline. In Q4, Dallas led with a record-high 193 projects and nearly 22,300 rooms in the U.S. hotel pipeline, "signifying Dallas’s robust growth and confidence in the hospitality sector," according to LE.
The second-highest count belonged to Atlanta with 151 projects and more than 18,700 rooms—a record-high for the city. Nashville represents the third-largest pipeline in Q4 with 123 projects and more than 16,100 rooms. Phoenix followed with 122 projects and nearly 16,000 rooms.
In Q4, New York City again reported the largest number of projects under construction in the pipeline with 44 projects and 7,338 rooms. Second to New York, Dallas reported 28 projects and 3,607 rooms under construction.
According to LE, Dallas appears to be "set to maintain its momentum" as it's "leading both projects scheduled to start in the next 12 months and early planning stages of the hotel construction pipeline."
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