Hotel Pipeline Has Two More Years of Rapid Growth, Forecast Predicts

Hotel Construction

Although it remains below the industry peak reached in early 2008, the national hotel pipeline has shown seven consecutive quarters of growth and has at least two more years of rapid growth ahead before "topping out," according to the latest analysis by hotel consulting firm Lodging Econometrics. The hotel construction pipeline, it said, currently stands at 3,885 projects comprising 488,230 guest rooms.

"Barring any exogenous event, everything suggests that there are a few more years of sustained profitability ahead before the flow of new hotel openings could possibly become problematic," Lodging Econometrics reported. "This creates a significant window of opportunity for the industry considering that in the first quarter guest room demand at a 4.2 percent growth rate is running four times greater than new supply growth and other operating metrics -- occupancy, average daily room rate, revenue per available room, and profitability -- are already at modern-day highs."

Benefitting the pipeline even further, according to Lodging Econometrics, are low interest rates and easy financing.

"Interest rates remain low and the Fed's hints of postponing increases until the fall bodes well for continued mortgage availability. Easy money has helped bolster transaction activity as increased buyer competition for prized assets has pushed up selling prices, making it more attractive for investors to build new projects rather than to buy existing hotels," the company continued. "These signs guarantee that development will continue to accelerate until later in the decade when the real estate cycle will eventually peak. In a few years, looking backwards, these will be invariably regarded as halcyon days for hotel investors and operators."

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