Hotel Development to Steadily Increase in the U.S. in 2014 and Beyond
According to the September 2013 STR Pipeline Report, the U.S. hotel industry has stepped up its efforts to increase the supply of hotel rooms as compared to the same period, a year ago, in September 2012. The active pipeline, as it is called, showed that there are 2,767 projects in various stages of development. If all of those projects are completed, it will add 333,775 new rooms to the current U.S hotel room inventory.
What is the active pipeline?
Data used in the STR Pipeline Report to measure the change in the active pipeline includes hotels currently under construction, those in the final planning stages and those in earlier stages of planning. It does not include any projects in the pre-planning phase (people thinking about adding guest rooms). Projects include both brand new hotels as well as additions that add more guest rooms to existing hotels.
More rooms and more rooms currently under construction
From September 2012 to September 2013, there was an increase of 15.6% in the total number of rooms in the active pipeline. It is also significant to note that the number of rooms under construction was up 29.5% in year-over-year comparisons.
What that tells you is that the demand for guest rooms has increased and hotels are doing more to get those rooms ready for occupancy. It also means that there is a strong shift from hotels in the planning stages to hotels that are being built right now.
Rooms in the active pipeline by Chain Scale segment
In the hotel industry, there are many different types of hotels. Not every segment has the same demand for rooms. Market conditions might be such that there is more of a projected demand for upscale rooms as opposed to budget accommodations.
The 2013 STR Pipeline Report broke down the various segments as follows:
• Upper Upscale – This segment had the largest increase in rooms in the total active pipeline. A total of 22,689 rooms were either in the planning stages or under construction. Compared to the number of rooms in the active pipeline in September of 2012, this segment was up 45.5%.
• Unaffiliated – Hotel rooms not part of a national chain showed a very strong gain of 31.2% with 100, 561 rooms in the active pipeline.
• Upscale – Accounting for 87,867 rooms and a 16% increase over September 2012, the upscale hotel room market contributed positively to the overall growth in the active pipeline.
• Luxury – 2013 was not a good year for this segment. Although there was still positive activity with 6,848 rooms, that figure represented an 18.4% decrease over the figures for September 2012.
Rooms under construction in September 2013 vs. September 2012
These numbers are important because they show the rooms that will be available the soonest for paying guests. Where a hotel in the planning stages might take two years to open, hotels in the construction stage can often be open in 6 months or less time. The sooner rooms are available, the sooner they can start generating revenue for a hotel.
The 2013 STR Pipeline Report broke down hotel construction by segment as follows:
• Upscale – Increased by 51.8% with 30,580 rooms
• Midscale – Increased by 35.2% with 3,863 rooms
• Upper Midscale – Increased by 25% with 23,689 rooms
• Economy – Decreased by 8.0% with 1,169 rooms
• Upper Upscale – Decreased by 1.9% with 7,417 rooms
These figures suggest that hotels are focusing more on the middle of the market and not so much on the extremes. Hotels that have the highest average daily room rates (upper upscale) and hotels that have the lowest daily room rates (economy), both showed decreases in 2013 when compared to 2012. Construction in hotel categories that offer rooms that are typically priced in the $100-$200 range did very well, with percentage increases of at least 25% in year-over-year comparisons.
Outlook for the U.S. Hotel Industry through 2014
STR not only gathered data on the active hotel pipeline, but they also analyzed current performance data for the hotel industry and made projections for what can be expected through the end of 2014.
Projections for the calendar year ending December 31, 2013
• Occupancy rates will be up 1.4% compared to the occupancy rate for the year ending December 31, 2012. Occupancy is expected to rise from 60.8% in 2012 to 62.2% in 2013.
• Average Daily Room Rates (ADR) are expected to come in at 4.2% above the 2012 ADR. In dollar terms, hotels will be able to charge, on average, $110.61 for each room they rent this year compared to $106.15 in 2012.
• Revenue Per Available Room (RevPAR) is projected to improve by 5.7% to $68.85 by year’s end compared to the RevPAR for the year ending December 31, 2012.
Looking ahead to 2014
STR is projecting continued growth in all of the important metrics that the hotel industry uses to measure performance. In comparison with the year-ending figures for 2013, in 2014, occupancy is projected to grow 1.3% to 63.1%. ADR is expected to increase 4.6% to $115.73 and RevPAR is projected to grow by 6.0% to $72.97.
Among the Top 25 Markets, double-digit RevPAR increases are expected for full calendar year 2013 in Houston, Oahu and San Francisco and that above-average performance should continue throughout 2014.
With favorable supply and demand conditions expected to continue in the industry, hotels will be able to raise their ADR and increase their revenue in 2014. Of course, as a large number of new hotel rooms are added to the hotel room inventory, that will add more supply and put some downward pressure on the ability of hotels to continue raising room prices.
Hotels may have recently suffered a blow to occupancy due to the October government shutdown, but, unless they do it all over again in January of 2014, hotels should be on target to meet industry projections. You never know how things will work out, but for now, the hotel industry is doing very well.
Related articles:
- Upscale Segment Leads US Hotel Pipeline Growth (worldpropertychannel.com)
- Austin’s Coming Hotel Boom One of the Largest in the U.S. (skift.com)
- The makings of a modern hotel (cnn.com)
