Stronger Than Expected Demand for Hotels Keeps Construction Boom Going

The hotel business keeps reaching new heights.

“The continued strength in room demand surprised on the upside,” says Jan Freitag, senior vice president of lodging insights for data firm STR.

Because of that strong demand, room rates continue to rise and more hotel rooms have been occupied over the last year than ever, filling up the new hotel properties that developers continue to open in cities across the country.

Developers are now planning to build even more new hotel rooms than last year, already a big year for new construction.

“We do not see a slowdown in the U.S. pipeline of hotel properties in development,” says Freitag. The number of new hotel rooms now planned totaled 590,000 in September. That’s up 9 percent compared to the year before. The total number of hotel rooms under construction rose to 192,000, up 13 percent compared to the year before, according to STR.

However, the pipeline of new hotels in development and pre-development is growing more slowly than during previous years.

Even with all the new construction, developers are not building as many new hotel rooms during this boom as they did during prior booms.

“The amount of supply set to deliver over the next four quarters is relatively low compared to most previous cycles,” says Jeff Myers, managing consultant for CoStar Portfolio Strategy. The latest surge in development is likely to increase the inventory of hotel rooms by 2.1 percent over the next 12 months. That’s less than half of the 4.3 percent growth that happened during the busiest 12 months in the mid-1990s.