One wonders if the boom in hotel construction globally and, in particular, the United States, will have any impact this year on U.S.-based receptive tour operators and international tour operators who will be negotiating for room allotments for late 2019 and 2020. Why? Because there is a continued boom in construction in new rooms globally, and, in particular, in the United States. The latter has North America leading other world regions in hotels in development and/or under construction (in the pipeline.) And within the U.S. itself are the two cities (Houston and Dallas) that lead the world in the number of hotels and rooms in the pipeline.
Portsmouth, N.H.-based Lodging Econometrics, which produces the Global Construction Pipeline Trend Report and compiles the construction pipeline for every country and market in the world, says in its latest report that the Total Pipeline stands at 12,427 projects accounting for 2,084,940 rooms—up by 8 percent year-on-year vs. 2016.
Currently (mid-December 2017) under construction are 5,885 projects representing 1,086,966 rooms (up 9 percent); 3,723 Projects representing 538,061 rooms (up 6 percent) scheduled to start construction in the next year; and 2,819 representing 459,913 rooms (up 8 percent) in early planning.
What Impact Will this Have on Rates? At first blush, the metrics seem to be increasingly favorable to the buyer (operators) as, given the numbers above, demand has not keep place with new supply. In fact, perilous times could be ahead for the hotel industry. Here is how the situation was described in the Lodging Economics statement that accompanied the release of the numbers:
One analysis indicated that supply growth in excess of demand is the reason why 50 of the 60 major markets in the CBRE Hotel Horizons universe are projected to realize a decline in occupancy in 2018. The disparity between the performance of the overall national market and the major local markets is driven by the skew of development activity. Nearly 90 percent of the new hotel rooms entering the U.S. in 2018 will reside in the 60 Hotel Horizons markets. Despite the increase in competition, the aggregate occupancy levels for the Hotel Horizons markets are forecast to remain above 70 percent through 2021. In 2018, 52 of the 60 markets are projected to achieve occupancies above their long-run average.
Said John Corgel, professor of real estate at the Cornell University School of Hotel Administration,
“Given such lofty occupancy levels, 49 of the Hotel Horizons markets are forecast to enjoy an ADR increase in excess of the projected 2.2 percent rate of inflation.”
