As the U.S. hotel industry’s pipeline continues to grow, where is the majority of growth occurring? This analysis looks at pipeline data of the top 110 metropolitan statistical areas.
HENDERSONVILLE, Tennessee—The continued increase in hotels under development and in construction is one of the frequent topics discussed by industry commentators and participants. The number of rooms under construction has increased 30% from a year ago, and the pace of construction is not showing any signs of slowing.
As of February 2017, the top-line number of nearly 195,000 rooms under construction and almost 600,000 rooms in the active pipeline only tells a small part of the story. This article looks into the 110 largest metropolitan statistical areas by hotel room count and the construction pipeline in more detail.
Breaking down the top 110 MSAs into segments of 10, a few things stand out:
- The top 10 MSAs account for more than a third of all rooms being built, and the top 20 MSAs account for almost half of all rooms.
- The largest 110 MSAs account for 80% of all rooms under construction.
- The 10 largest MSAs are adding almost as many rooms as the next 40 MSAs combined.
- 20% of all rooms in construction are being built outside of the largest 110 MSAs. So there are still pockets outside of the large and small metros that are seeing healthy development activity.
It should come as no surprise by now that the MSA with the largest under-construction room count is New York City. Here are the markets with the most construction activity:
New York City is, was, and will be the darling of developers. It is worth noting that demand in February 2017 increased 6.7%. I am not a big believer in the “Field of Dreams” theory: “If you build it, they will come.” But when a market reports 6% supply growth and demand still outpaces that, maybe Kevin Costner is right when it comes to New York City.
That said, Houston makes the list of MSAs with the largest room count for projects in the final planning stage, meaning that construction is expected in the next 12 months.
It will be interesting to note if the continued poor revenue-per-available-room performance in Houston will put a damper on developer enthusiasm.
The list of MSAs with the greatest number of rooms in the planning phase indicates that developers have shown a lot of interest recently in Riverside/San Bernardino, California.
These projects are confirmed, with the start of construction is more than a year out, but the attrition rate in this phase has historically been quite high, so not all of these rooms will come to pass. As you have probably noticed now, New York City makes all three lists above, so developers are actively planning ever more rooms for the largest hotel market.
A slightly different way of looking at the pipeline is to add the three pipeline phases (construction, final planning, planning) and to divide it by the existing rooms available. This shows a growth rate—of sorts—and gives a good indicator which MSAs have not only seen strong development today but are expected to in the next few years.
Nashville, Tennessee, and Austin, Texas, top the list with the possibility of new room additions over the next few years totaling one-third of the existing rooms. One way to interpret this is if a developer is interested in these markets and starts thinking about it today, they will be pretty late to the party.
Of course, there is always the other side of the coin—MSAs with zero rooms under construction.
For better or worse, these markets have rooms in the pipeline but those projects have not started vertical construction yet. Owners and hoteliers of existing properties in those markets probably like that just fine. In addition, 16 MSAs have exactly one hotel under construction, and developers of those properties probably like their odds going forward.
When the U.S. pipeline is discussed, it is always worth remembering that the top 20 MSAs account for almost half of the rooms currently being built, so plenty of MSAs can expect much smaller supply growth rates.
With that said, these top MSAs also account for large amounts of room demand so active developers there must believe that their property is “the better mousetrap” and can attract an above average share of demand. We will continue to monitor the pipeline closely to see which markets continue to attract new development activity and which markets will fall out of favor, partially because today’s pipeline is already so strong.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.