nai.hotelmanagement.net -- The hotel industry in the United States is back into a construction
mode. According to Lodging Econometrics, the U.S. development pipeline
included 4,038 hotels with 507,221 rooms at the end of the second
quarter. That’s an increase of more than 20 percent in both properties
and rooms over the second quarter of 2014. Nearly 70 percent of rooms in the development pipeline are either
under construction (146,743 rooms) or will start construction within the
next 12 months (198,506). “There’s no question there’s more construction going on,” said Chris
Nassetta, president and CEO of Hilton Worldwide Holdings, during a
second-quarter earnings call with analysts. “Not just in hotels, but
across the board there’s more infrastructure spending going on.
You’re
also seeing construction in other areas of real estate and home building
is picking up.” During the second quarter, Hilton approved 24,000 new rooms for
development, and the company’s development pipeline included 1,510
hotels with more than 250,000 rooms. A little bit less than half the
rooms in the Hilton pipeline are in the U.S. Other major brand companies have been building their development
pipelines. At the end of the second quarter, Marriott International had
more than 250,000 under development, while InterContinental Hotels
Group’s pipeline included nearly 1,300 hotels. Marriott boasts that it
is the first company with more than 1 million hotel rooms open or under
development.
Increasing numbers
In 2015, according to Lodging Econometrics, 754 hotels with 78,808
rooms will open, representing a 1.6 percent increase in existing supply.
The number of new hotel openings will continue to build during the next
three years, and during 2017, 992 properties with 113,968 rooms are
expected to open. Hotels in the upscale and upper-midscale segments dominate the
current development pipeline. More than 2,500 hotels with nearly 285,000
rooms are under development in these two segments. That’s 63 percent of
hotels and 56 percent of rooms under development. The pipeline for luxury hotels is less robust and includes just 42 hotels with 11,785 rooms.
Where to build
Steve Rushmore Jr., president and CEO of HVS, said the increase in
new hotel construction should create equilibrium between supply and
demand in the U.S. by the end of 2016 or early 2017. He also outlined the U.S. markets with what he calls “the highest
entrepreneurial incentive for new construction.” Topping the list are
Manhattan, followed by Austin, Texas; Brooklyn, New York; Denver; and
New Orleans. Major markets lowest on the list of places to build,
according to Rushmore, are Atlanta; Dallas; Ft. Worth, Texas; and
Houston.
Costs on the rise
A rebounding U.S. and world economy, combined with a rise in
residential construction activity in 2013, put pressure on costs of
commercial construction, including hotels. However, according to the HVS
U.S. Hotel Development Cost Survey, residential construction declined
in 2014, which helped to ease construction cost increases. In some top-tier markets, such as New York, San Francisco and Miami,
hotel construction costs have risen considerably in the past three
years. According to HVS, full-service and luxury hotel developers in
Miami report cost increases of 25 percent to 30 percent in that time.
Cost increases are more manageable in most other areas of the
country. In 2014, costs were up nationwide by about 3 percent. Cost
increases for building materials varied from above 5 percent for lumber
and cement to around 2 percent for steel. Not surprisingly, the recent low point for hotel construction costs
was during the last recession in 2010. Today, the average per-room cost
of hotel development—including land; building; furniture, fixtures and
equipment; soft costs and preopening costs—range from $86,900 for
economy and budget properties to $335,000 for full-service hotels and
more than $700,000 for luxury hotels.
