According to the 2023 year-end U.S. Construction Pipeline Trend Report from Lodging Econometrics (LE), the pipeline stood at 5,964 projects/693,963 rooms. The pipeline hit record project counts in Q4, with the addition of 260 projects and 21,287 rooms over the last quarter, a 9 percent increase in projects, and a 7 percent increase in rooms year-over-year (YOY). The previous project count high was Q2 2008 with 5,883 projects.
At the close of 2023’s fourth quarter, there were 1,118 projects/141,768 rooms under construction, up 11 percent by projects and 5 percent by rooms YOY. Projects scheduled to start within the next 12 months stood at 2,259 projects/261,582 rooms, up 9 percent by projects and 11 percent by rooms YOY. Projects and rooms in the early planning stage hit all-time highs in Q4, standing at 2,587 projects/290,613 rooms, and up 9 percent by projects and 4 percent by rooms YOY.
Notably, the number of combined hotel renovations and brand conversion projects in the U.S. continued its upward growth trend through the end of 2023, closing the year with record project and room counts of 2,028 projects/303,330 rooms.
The upper midscale segment had the highest project count of all chain scales in the total U.S. construction pipeline at the Q4 close, reaching an all-time high of 2,245 projects/218,112 rooms. The second largest was the upscale category, which has 1,445 projects/177,999 rooms. Together, these two chain scales comprised 62 percent of all projects in the country’s total pipeline at the Q4 close.
The recent Federal Reserve signaling of three 25-basis-point interest rate cuts in 2024 and additional cuts in 2025 sent a positive but cautious outlook for U.S. hotel development in the year ahead. With the anticipation of multiple rate cuts in 2024, hotel development seems poised for constructive growth well beyond 2024. The primary reason lies in less expensive borrowing costs, providing long-awaited relief on interest rates. This is expected to have a favorable impact not only on new construction but on acquisitions, renovations, and conversions as well. 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. LE expects this cautious yet optimistic approach will continue through 2024, however, it expects to see investors re-engaging, which, the pipeline numbers and record-high project counts show, has already begun. LE expects lending volume to increase slowly in the first half of 2024 and then gradually pick up the pace in the second half of the year.
In 2023, the United States had 474 new hotels/60,436 rooms open, a 1.1 percent growth rate in new supply, bringing the total U.S. census to 59,636 hotels/5,655,356 rooms. In 2024, LE analysts expect the existing supply of hotels in the United States to increase 1.4 percent with the opening of 677 new hotels and 79,518 rooms. The LE forecast for new hotel openings shows this growth trajectory will continue through 2025, with another 799 new hotels/85,654 rooms forecast to open by year-end 2025 and further growth anticipated for 2026 and beyond.