A pipeline attrition analysis conducted by STR evaluated what percentage of hotel construction projects in the U.S. are abandoned.
BROOMFIELD, Colorado—The hospitality industry continues to keep an eye on hotel supply, as overbuilding has been a concern in previous cycles.
This current cycle has resulted in record-setting occupancy levels, due to strong demand growth and lower supply growth than previous cycles. Despite sustained low supply growth, STR’s pipeline data still reflects an increase of rooms in construction. STR is the parent company of Hotel News Now.
As of April 2019, the number of rooms in construction was up 10% from 2018. This is a shift considering monthly in-construction rooms growth was below 1% between late 2017 and mid-2018. With demand growth slowing in the first quarter of 2019 and in-construction rooms increasing, the focus on supply growth has been magnified. This leads us to the question, “What percentage of pipeline projects come to fruition?”
We conducted a pipeline attrition analysis to evaluate what percentage of pipeline projects are abandoned. The analysis only included new-construction projects (conversion projects were excluded), required that each project entered at least one active phase, and used the most recent phase if the project went through the same phase multiple times. We analyzed the data based on the year the project entered the planning, final planning and in-construction phases. Then we observed if the project was either opened or abandoned.
Active phases are considered planning, final planning and in construction. Definitions of each phase are listed below.
- Planning: Confirmed, under-contract projects where construction will begin in more than 13 months.
- Final planning: Confirmed, under-contract projects where construction will begin within the next 12 months.
- In construction: Vertical construction on the physical building has begun. This does not include construction on any sub-grade structures including, but not limited to, parking garages, underground supports/footers or any other type of sub-grade construction.
- Abandoned: Project has been terminated. No further information is available.
The chart below shows the average attrition rates from 2013 to 2016 for the total U.S. This analysis excludes projects that entered planning, final planning, and in-construction since 2017, as a large majority of these projects are still in active phases.
The results are what we expected—that there’s a higher likelihood of a pipeline project being completed the further along it is in the planning process. It is interesting that even if a project is under construction, 4% of projects on average still do not open.
The charts below take a deeper look into each active phase on an annual basis.
Unsurprisingly, the planning phase has the highest attrition rate, as these projects are still early in the development process. There is little variance in attrition rates each year and between 34% and 37% of projects that enter the planning phase are abandoned.
The final planning phase has the greatest attrition rate disparity year to year. The lowest attrition rate (17%) was for projects that entered final planning in 2015. Projects that entered the final planning phase in 2016 showed an increased attrition rate, but still slightly below the attrition rate of projects entering final planning in 2013 and 2014.
Similar to the planning phase, the in-construction phase shows little variance each year and less than 5% of in-construction projects are abandoned.
Pipeline attrition rates help provide perspective into the increasing hotel pipeline. This information can increase accuracy in forecasting future hotel supply. STR will continue to monitor pipeline attrition trends for projects that entered active phases in 2017, as more projects are completed or abandoned.
STR’s Ali Hoyt and Kobe Akuffo Owoo contributed analysis to this article.
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.